Marginal Revenue Productivity Theory of Wages
A Marginal Revenue Productivity Theory of Wages is a economic market theory for labor markets that wages are paid at a level equal to the marginal revenue product of labor (MRP) (which is the increment to revenues caused by the increment to output produced by the last laborer employed.)
- Context:
- It can state that a business firm would be willing to pay a productive agent only what he adds to the firm’s utility.
- Context:
- It is clearly unprofitable to buy a man-hour of labour if it adds less to its buyer’s income than what it costs.
- See: Marginal Revenue, Neoclassical Economics.
References
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- QUOTE: ... But employers do not have an incentive to increase hiring based on average output per worker. Rather, what matters to companies is marginal productivity—the additional contribution that one more worker brings by increasing production or by serving more customers. The notion of marginal productivity is distinct from output or revenue per worker: output per worker may increase while marginal productivity remains constant or even declines.
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2015
- (Wikipedia, 2015) ⇒ http://en.wikipedia.org/wiki/Marginal_revenue_productivity_theory_of_wages Retrieved:2015-12-21.
- The marginal revenue productivity theory of wages is a theory in neoclassical economics stating that wages are paid at a level equal to the marginal revenue product of labor, MRP (the value of the marginal product of labor), which is the increment to revenues caused by the increment to output produced by the last laborer employed. This is because no firm would employ additional labor whose cost would exceed the revenue generated for the firm. [1]
The marginal revenue product (MRP) of a worker is equal to the product of the marginal product of labour (MP) (the increment to output from an increment to labor used) and the marginal revenue (MR) (the increment to sales revenue from an increment to output): MRP = MP × MR. The theory states that workers will be hired up to the point when the marginal revenue product is equal to the wage rate.
The idea that payments to factors of production equilibrate to their marginal productivity had been laid out early on by such
as John Bates Clark and Knut Wicksell, who presented a far simpler and more robust demonstration of the principle. Much of the present conception of that theory stems from Wicksell's model.
- The marginal revenue productivity theory of wages is a theory in neoclassical economics stating that wages are paid at a level equal to the marginal revenue product of labor, MRP (the value of the marginal product of labor), which is the increment to revenues caused by the increment to output produced by the last laborer employed. This is because no firm would employ additional labor whose cost would exceed the revenue generated for the firm. [1]
- ↑ Daniel S. Hamermesh, "The demand for labor in the long run"; published in Handbook of Labor Economics (Orley Ashenfelter and Richard Layard, ed.), 1986, p. 429.
2012
- (Moseley, 2012) ⇒ Fred Moseley. (2012). “A Critique of the Marginal Productivity Theory of the Price of Capital." real-world economics review 59
1959
- (Mazumdar, 1959) ⇒ Dipak Mazumdar. (1959). “The Marginal Productivity Theory of Wages and Disguised Unemployment." The Review of Economic Studies