marginal productivity theory of wages

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January 27, 2018

marginal productivity theory of wages

Marginal productivity theory of wage explains that under perfect competition a worker’s wage is equal to marginal as well as average revenue productivity. In According to this theory wage of a laborer, is determined by his marginal productivity. Marginal productivity theory of wages is an eminent concept in economics to understand the role of marginal productivity of labor in wage determination. Behavioural Theories of Wages. Demand and Supply Theory. Both Ricardo and west applied the marginal productivity principle only to land. Just Price Theory. Marginal Productivity Theory 6. In other words marginal revenue productivity and average revenue productivity (ARP) of a worker determine his wages. Bargaining Theory. In other words marginal revenue productivity and average- revenue productivity (ARP) of a worker determine his wages. The marginal productivity theory of wages is a highly aggregative, demand side theory of wages that takes the firm as the starting point. But the idea of marginal productivity did not gain much popularity till the last quarter of 19th century. Theory # 5. Marginal Productivity Theory: According to this theory, the higher the wage, the smaller the amount of labour the entrepreneur will employ. According to this theory, wages are based upon an entrepreneur’s estimate of the value that will probably be produced by the last or marginal worker. Marginal Productivity Theory. Surplus Value Theory. Residual Claimant Theory 5. Behavioral Theory. Marginal productivity is the addition made total productivity by employing one more unit of labor. According to this theory, wages are paid on the basis of marginal productivity of a worker but it is not always realistic. The Marginal Productivity Theory of Wages and Disguised Unemployment There is a widely accepted notion that in backward economies with an over-populated agricultural sector, the marginal product of labour is zero. Residual Claimant Theory. Marginal productivity theory of wages Economists David Ricardo and west first of all propounded the concept of marginal productivity. In essence, it holds that in a competitive economy, the marginal productivity of labour determines the demand for labour, and the demand for labour determines its price. The main theories of wages are discussed below: 10 theories of wages. According to him: "Wages tend to be equal not to the marginal net product but the discounted marginal net product of the labor employed at the margin". Additional labour will be employed till the last addition to the total value of the product is only just covered by the wages paid to the marginal or the last worker taken on, without leaving any profit. In other words MRP= M.W. Other most important theories of wages are the subsistence theory of wages or the iron law of wages, the standard of living theory, the wages-fund theory, and the residual claimant theory. Wage Fund Theory. Subsistence Theory. Productivity is also a function of wages. Marginal Productivity: This theory was developed by Phillips Henry Wicksteed (England) and John Bates Clark (USA). After that the economists like J.B.… Professor Taussing has reproduced the marginal productivity theory of wages in a slightly refined form. Investment Theory. Yet there is a positive wage which seems to be in contradiction with the marginal productivity theory of wages. The marginal productivity theory of wages has been criticised on the same grounds as was done the marginal productivity theory of distribution as given under: (1) Output is the result of collective efforts of different factors of production. The Bargaining Theory of Wages 7. Average revenue productivity ( ARP ) of a laborer, is determined by his marginal productivity of.... Phillips Henry Wicksteed ( England ) and John Bates Clark ( USA.... 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