Source: Tutor2u To what extent is this an accurate summary of what drives wage rates? Can we seriously conclude that wages reflect marginal productivity criteria?
While I think there is some merit in neoclassical economics, it has some diminishing returns. For instance, how can an employer know the marginal productivity of the next worker they add. They may be able to estimate it, but it is not necessarily linear. Or it could be piece wise (is this the correct term?) linear and drop off at that point. Also, how could one test this theory? You could look at wages to determine the marginal productivity, but that would be circular. Not to mention more complex labor market theories suggest other factors are at play (discrimination etc.). Not to mention, does anyone really think "rationally"? Is it really that good of a first best approximation, especially when taken to the extremes it is in neoclassical economics?
I don't think hypothetical marginal productivities is the problem. They just need to be profit maximisers after all. The problem becomes how labour economics interacts with the theory of the firm. We'd need marginal costs, for example, to be relevant. Clear bobbins!
the labor supply is the cost determinant. As the supply increases employers can cut wages and benefits while maintaining acceptable productivity until competition for that supply of qualified labor reaches a point that employers must increase wages and benefits in order to maintain the workforce. This is why Republicans, for all their screaming about illegal immigrants rarely do anything meaningful to address the problem and why the H1B program is still in effect despite the high unemployment rates. Increased productivity actually has a negative impact on wages because it decreases labor demand for the same production.
You'd have to make some rather unrealistic assumptions, such as assuming product demand is constant. It isn't
