Criticisms (Limitations) of the marginal productivity theory of wages (Labour)
- It assumes no government intervention yet governments especially in developing countries, being the major employers interfere in the labour markets by fixing the wages paid to the workers.
- It assumes perfect mobility of labour yet there exists high levels of geographical and occupational immobility which exists in the labour markets.
- Most employers do not have enough information to assess the marginal productivity of their workers.
- It is not easy for workers to determine their marginal productivity as the theory assumes.
- The theory assumes conditions of perfect competition which does not exist in the real world.
- Units of labour are not homogenous as the theory assumes. This is because of the differences in educational levels, abilities and skills.
- It is very difficult to measure the marginal productivity of labour as an individual factor. This is because marginal product is as a result of all factors of production.
- The theory fails to put into account the exploitative habits of employers which makes them to under pay their workers below the value of their marginal product.
- The bargaining power varies between employers and employees due to differences in bargaining skills and qualities.
- It does not consider the high levels of unemployment and underemployment which tend to force the workers to accept wages even below their marginal product.
- The theory assumes free and fair competition among the workers for jobs yet there is a lot of discrimination in the labour market based on sex, religion, tribe, political differences etc.
- The theory is irrelevant under conditions of full employment where there is no room for the extra worker to add on to the total output.
- Marginal productivity change over time due to economies and diseconomies of scale. Therefore it can lead to instabilities in wages if it is used as a basis of wage determination.
- At times wages are greater than the marginal productivity due to pressure from the trade unions.
CATEGORIES Economics
TAGS Dr. Bbosa Science
