The Return of Subsistence Wages
How Housing Costs and Real Wage Stagnation Threaten the Working Class in 21st Century
The exorbitant prices of housing make it practically impossible for the majority of the population, especially the young, to start or maintain a life project. It's not just about having a roof over one’s head; other aspects of life, especially starting a family, are put on hold. This grave problem reflects the low level of real wages in Spain, which are likely below what we might call the subsistence wage.
Classical economists argued that the dynamics of the capitalist market inexorably led to the wages of the working class remaining close to subsistence level. Figures such as Adam Smith, David Ricardo, Thomas Malthus, and Karl Marx believed so firmly in this idea that it was enshrined as the "iron law of wages."
Although the 19th century was rife with poverty and hunger, the term "subsistence wage" should not mislead us. It does not refer to the minimum conditions for mere biological survival, like consuming around 1,500 calories a day to maintain basal metabolism. On the contrary, it refers to a social minimum, a level of income that allowed workers not only to survive but also to form a family. The subsistence wage, therefore, depends on the social conditions of each era. Today, for instance, this concept would necessarily include both the cost of housing and the transportation we use to get to work. Essentially, the subsistence wage is that which allows the working class to survive as labour, without luxuries, but with basic needs met.
Smith believed that working-class wages tended to the subsistence level due to the unequal bargaining power between workers and employers. Under such conditions, Smith thought, employers’ decisions to maximise profits translated into minimising wages to the lowest acceptable level. After all, workers are necessary for the employer, so they cannot reduce wages below a level that would endanger the survival of their present or future labour force.
Malthus' argument, on the other hand, was demographic and based on the relationship between population and food supply. In his famous principle of population, Malthus began by arguing that if wages rose, working families would be able to consume more food, stimulating population growth. In turn, a larger working population would mean a reduction in food per capita, bringing wages back down to subsistence level.
In contemporary economic theory, this concept is considered outdated and is not given much attention. Economic development, the Welfare State, and especially technical progress and cheap energy meant that, after World War II, the working class in the West saw significant improvements in their living conditions, far surpassing subsistence levels. The strengthening of trade unions, the construction of public services that function as social wages (eliminating the need to pay for healthcare or education), and, ultimately, the increase in real wages allowed economists to forget the grim predictions of their classical predecessors.
However, the neoliberalism of recent decades has, to a great extent, meant a return to the socio-political conditions of the 19th century. The attack on collective bargaining, economic policies based on wage cuts, and the privatisation of public services, among other measures, have led to a continuous decline in real wages. Working families find it increasingly difficult to cope with the rising costs of everyday expenses.
As I mentioned earlier, the notion of subsistence wages was dismissed as erroneous. Malthus was wrong, as agricultural production has multiplied far beyond population growth. This is true, but thanks to technological developments highly dependent on cheap energy. Humanity has managed to multiply its food production by developing agricultural tools like tractors and distribution networks, as well as fertilisers, all of which are energy-intensive. However, these conditions are changing due to the eco-social crisis, which also involves climate change with very negative effects on harvests almost everywhere. In short, inflationary pressures are already occurring in the agricultural sector, and it is reasonable to believe they will intensify in the future. The ghost of Malthus returns, and working families are the first to suffer.
This is why the case of housing is even more distressing. In this area, the eco-social crisis does not have such an obvious effect on the market. It is completely out of control due to the speculation taking place with a basic necessity that has been turned into just another commodity. The possibility for working families to have a solid foundation for their life projects has been cut off, all so that large and medium-sized capital can accumulate fortunes. A civilisational nonsense.
Today, young working families depend on external help, such as the support they receive from their parents and grandparents, to cope with a situation that has only become more complicated. If this support were withdrawn, it would be even more evident that real wages are below subsistence level and that the relative living conditions of Spanish families are beginning to mirror those of the 19th century.
Meanwhile, the state has refrained from intervening in the market for fundamentally ideological reasons. The collective economic and social benefit of intervening in the market would be enormous, but it is not done. It is not a technical problem, nor even one of economic efficiency (the large capital invested in the property market would be more useful in other sectors of the Spanish economy), but purely and simply a matter of ideology.
The conclusion is inescapable: if progressive forces are not able to tackle this issue head-on, effectively raising real wages, they risk losing the confidence of a large part of the population, which is already teetering on the edge of disillusionment. While it is not a panacea nor guarantees the re-election of a progressive government, it is almost certain that without decisive action on this front, the left will see its opportunities for political success severely limited in the short term. The challenge is clear: addressing the most urgent material needs of the working class is not only a matter of social justice but also of political survival for leftist formations.