In the Capitalist system wages, labor, commodities, and the cost of production are all intrinsically connected. The capitalist system is setup to benefit only the small elite few known as the Bourgeoisie class. In this system, the worker's labor is a commodity just like any other type of product would be. The capitalist "buys" labor with money whilst the laborer "sells" his labor time to the capitalist. The worker never owns any part of the finished product that he makes or the raw materials that were required to make it. The Capitalist "buys" the machinery, raw materials, and supplies just like he "buys" the worker's labor. Wages is just another name for the price of labor. A laborer does not own the product he makes, the Capitalist does, so wages are what the Capitalist pays for his labor time. Wages are a means for the Capitalist to control the society and are used as the reason for why the laborer needs to work ie maintain quality of life. "The cost of production of simple labor, therefore, amounts to the cost of existence and reproduction of the worker." In other words the cost of production is directly tied to the worker's wages. The wages are determined by the amount of training and skill required to perform the task and also by the amount to sustain the workers throughout life.
The implementation of industrial innovations and the increase of division of labor show exactly how wages, labor, and the cost of production are inter-related. For instance there is a company that makes bottled water. At first the Capitalist pays the laborer a wage of 100 dollars a day to bottle water which includes filling the bottle, labeling, capping, and packaging the bottle. The Capitalist then decides to increase the division of labor to lower his cost of production. He does this by adding workers to do each step instead of paying one person to complete each step. Since the time to learn and skill required to only complete one step of the process is lower he does not have to pay each workers as much as the one original workers. He now only has to pay the filler 20 dollars a day, the labelers 20 dollars, and capper 20 dollars, and the packages 20 dollars. The Capitalist now only pays 80 dollars in the cost or production versus the 100 dollars he was paying before all the while the worker is still only receiving as much as required to sustain his living. This example shows that labor is a commodity with a price that is set upon its relative value to the capitalist. If the labor is easy to reproduce and requires little to no training then the worker's wages will be at the wage minimum which is just enough for the worker to live. The more division of labor the Capitalist can create then the lower of the cost of production he pays due to the lower amount of wages paid to the workers.
The problem with this system is that it is based solely around the exploitation of the proletariat class. No matter how much they work, capitalists will on average pay only the wage minimum for the laborer to survive. The laborer receives his means of survival in return for his labor to the capitalist. The capitalist on the other hand receives from the workers their labor which he then turns around and sells it right back to them and a substantial mark up only perpetuating the entire process.