Subsistence wages are set by the value of the "outside option" for workers in undeveloped countries, which is subsistence farming. As a country develops, labor

Subsistence wages are set by the value of the "outside option" for workers in undeveloped countries, which is subsistence farming. As a country develops, labor productivity increases and wages rise, until companies are willing to switch to lower productivity but cheaper workers. This cycle ends once the supply of subsistence wage workers runs out.