Criticisms of Marginal Productivity theory of wages

 

Criticism

Economists Samuelson, Keynes, Barbara, Wootton have severely criticized the marginal productivity theory on several grounds. They are

(1)        Unrealistic Assumptions.

Marginal productivity theory is based on such assumption of stationary state, perfect competition homogeneous labor, constant technology, which, in fact, is impossible to exist in the real world. For an example, in real world, imperfect market instead of perfect competitive market is existed. Laborers are not homogenous. The world is not satire but dynamic.

 

(2)        Difficult in the measurement of marginal product.

The different factors are jointly used on the production process. If a single factor is separated from such production except others, the marginal productivity except others, the marginal productivity of such segregated factor will be impossible to trace out in a large-scale organization. Hence, if marginal productivity of a factor can’t be estimated, how the price of such factor can be fixed it is a major question. But some economists are of the opinion that marginal productivity of one factor (keeping other constant) is possible to find out.

(3)        Wage rate also determines productivity

According to this theory, wages are paid on the basis of marginal productivity of a worker but it is not always realistic. Productivity is also a function of wages. Higher wage level may improve the standard living of laborer and increases his efficiency or productivity and low level of wage rate of worker can’t improve his standard of living and he will not perform well so productivity will be lowered. Hence, it is said that wage rate determines the productivity of labor.

(4)        Ignored power structure, social tradition the marginal productivity

Theory has; ignored the power structure, social tradition social status and prestige of a group of workers, in the determination of wage of various groups of classes of labor force. Due to the above factors, the wage of some staffs in any company is determined not according to their marginal productivity. The top executives in such company generally are getting their salaries more than their marginal productivity. According to pen, the marginal productivity theory does not explain wage determination between men and woman, between races and between social classes. This theory has also ignored the role of labor unions to influence the wage rate determination in the market.

(5)        Unable to explain the determination of factor prices under conditions of imperfect competition.

Marginal productivity theory is based on the assumption of perfect competition. It prevails in both product and factor markets respectively. When there prevails imperfect competition in the product market (assuming perfect competition in the factor market) factor of production would not get wage equal to the value of the marginal product as in the marginal productivity theory. Under such imperfect market a factor production is paid according to a different principle namely, marginal, revenue product (MRP) which is less than the value of the marginal product (VMP). According to Joan Robinson, a factor is exploited it is paid less than value of its marginal product, whereas in marginal productivity theory. Factor is paid according to its contribution in the total production or marginal productivity.

(6)        No explanation of remuneration of entrepreneur

Another important criticism of marginal productivity theory is that it doesn’t explain the profits which an entrepreneur can each. Because to find the marginal productivity of such an entrepreneur, he can be ant in the production process but he can’t be varied since the entrepreneur in a firm is only one and a fixed factor. Therefore marginal productivity of entrepreneur from the view point of a less if the single entrepreneur is with drawn from the firm, keeping all other factors constant, the whole production process of the firm will collapse contrary to it, if new entrepreneur is added in a firm that will mean the establishment of a new firm.

(7)        Supply of a factor is not always fixed.

According to the Calrkian version of marginal productivity theory demand side is much advocated for the wage rate determination and thus Clark’s version does not ignore the supply side but grants it perfectly in elastic at the level of full-employment, in the long run. Here, clark’s view of full employment itself is far reaching phenomenon in real world.

(8)        Long term explanation:

According to the marginal productivity theory. In the long run period, wage rate tends to be equal to the marginal product of labor employed in economy. But critic are of the opinion that long term result can’t be important than the short term are for human beings because as Keynes argues, we are all dead in the long run.”