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."
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