Why is marginal productivity theory rarely used in determining wages?
- The theory assumes that there is no government interference, but government usually interferers in wage determination
- The theory assumes the law of diminishing returns, but this does not apply at all times since government sometimes establishes minimum wages
- The theory assumes that employers can calculate MRPL but labour employers cannot calculate the marginal product
- P(b)(9 and it changes with time leading to wage instabilities.
- It assumes that all factors of production are substitutable but some factors of production are not substitutable
- It assumes that output can be quantified in measurable units to quantify the output
- It assumes that all factors are employed, but all factors of production are not fully employed.
- The theory assumes that the bargaining power of labour and management is equal, this is not true because most times workers are exploited.
- It assumes perfect competitive labour market but there is no perfectly competitive labour market.
- Wages are usually determined by several other factors rather than marginal product of labour.
- The labour is not perfectly mobile.
- The theory assumes that there exists perfect competition in all the markets. But in reality, perfect competition is only an imaginary concept. In modern days, perfect competition does not hold good.
- The marginal productivity theory holds good in the long run only while it ignores the short period
- The theory assumes employment can be increased by wage cut. Moreover, according to Keynes, the volume of employment is not determined by wage rate but by effective demand.
- Production is the result of the co-operative efforts of all the four factors of production and it is not possible to separate out the contribution of one factor.
CATEGORIES Economics
TAGS Dr. Bbosa Science
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