Tuesday, November 23, 2010

Criticisms.

The MPT of wag has criticized by many economists, Prominent among them are Samuelson, Keynes, Frasher, Barbara Wootton. The main criticisms levelled against this theory are follows :
  1. Based on unrealistic assumptions :This theory is based on many assumptions are unrealistic, this theory has no validity. For example, this theory assumes stationery state, Perfect competition, Perfect mobility of labor, labor is homogeneous. These assumptions are not true in real world. The world is not static, competition is not perfect, labor is not homogeneous.
  2. Difficulty in the measurement of marginal product :It is not possible under certain circumstance to measure the measured product of labor. If the marginal product cannot be measured, How can the labor be priced. Because, the additional or withdrawal of a factor in a large scale industry has hardly any effect on total output. The different factors are jointly used in the production of a commodity. Hence the productivity of a factor cannot be measured separately. If the productivity of a factor cannot be measured, the wage cannot be determined on the basis of marginal product. But some of the economists are of opinion that the marginal product of the factors can be estimated by varying a factor, keeping all other factors constant.
  3. MPT does tell how the reward of a factor is determined in actual practice :This theory takes the reward of labor as given and explain how the entrepreneur equates the MP to the given wage. So this theory does not exactly tell us how the reward of labor is determined in actual practice. Samuelson has rightly remarked-"It is not a theory that explains wages, rent or interest ;on the contrary, it simply explains how factors of production are hired by the firm, once their prices are known."
  4. MP also depends on reward :According to this theory, the Mp affects its reward. But the MP not only affects the reward, but is also affected by the reward. As is well-known, the MP of efficiency of labor depends to a large extent on the reward it gets. Because, as the reward of labor increases, the volume of living of the laborers increase, they become healthy and the productivity increase.
  5. Wage rate is not the sole determinant of the volume of employment :It follows from MP theory that the wages rate is the sole determinant of the volume of employment in a country. So if the wages are lowered, the volume of employment will automatically of increase. But Keynes said that the volume of employment is determined by the effective demand and not by wage rate. For example, during the time of depression both wage rate and employment are low.
  6. Long-term explanation :The MP theory furnishes a long term explanation of the factor pricing in the long run tends to be equal to its tells us that, the price of labor in the long tends to be equal to its marginal product. But the critics are of opinion that long period is not as important as short period to us. Keynes observes -"We are all dead in the long run. "Likewise, Stonier and Hague remark - "Long period, like tomorrow never comes. "The MPT ,thus, does not throw light on the short determination of wage.
  7. Supply of a factor is not fixed :The MP theory assumes the supply of a labor to be fixed. In actual practice, the supply of a factor with the exception of land is seldom fixed, particularly in the long period. The reward received by a factors affects its supply. The fact is that this theory approaches the problem from demand side only. It offers, thus, a one sided explanation of the problem of distribution or wage. Fresher observes -"Its postulates are unduly rigid and narrow."
  8. Ignored labor unions :According to Barbara Wootton ,this theory has ignored the role of strong trade unions in the determination of wage. There exist strong trade union in modern days. These unions are able to keep wage rate above marginal product by means of collective bargaining.
  9. Ignores power structure, social tradition etc. This theory has ignored the power structure, social tradition, social prestige and level in determination of wages of different classes of laborers. The salary of top executive and other personal is determined by these factors rather than product. The chief executive generally receives the salary more than marginal product. According to pro. Pen -"This theory does not explain the discrimination between male and female, between different races and social classes."
  10. Ignored distributional justice :Since this theory approves low wage and ignores distributional justice, this theory unjust and cruel. The marginal product of old, blind, lame is low or zero. Similarly, if the supply of labor, exceeds demand, the MP in an industry or sectors becomes low. This implies that the wages should be paid less than what is necessary.

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