According to this theory, wages are based upon an entrepreneur’s estimate of the value that will probably be produced by the last or marginal workers.

1. Marginal Productivity Theory– Wage Theories
Compensation Management

2. Prepared By
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Manu Melwin Joy
Assistant Professor
Ilahia School of Management Studies
Kerala, India.
Phone – 9744551114
Mail – manu_melwinjoy@yahoo.com

3. Marginal Productivity Theory
• According to this theory,
wages are based upon an
entrepreneur’s estimate
of the value that will
probably be produced by
the last or marginal
workers.

4. Marginal Productivity Theory
• In other words, it
assumes that wages
depend upon the
demand for, and supply
of, labour.

5. Marginal Productivity Theory
• Consequently, workers are
paid what they are
economically worth. The
result is that the employers
has larger share in profit as
has not to pay to the non-
marginal workers.

6. Marginal Productivity Theory
• This theory is criticized on
the following grounds:
– (a) It is wrong to assume
that more labour could be
used without increasing
the supply of production
facilities.
– (b) This theory is based
on perfect competition in
the market which is
seldom found in practice.

7. Marginal Productivity Theory
• This theory is criticized on
the following grounds:
– (c) In practice, the
employers offer wages
less than the marginal
productivity of labour. In
many cases, the labour
unions are able to bargain
for wages higher than the
marginal productivity of
labour.