The Marginal Productivity Theory Debate

Australian Free Market Economist, Gerard Jackson, discusses “Marginal Productivity Theory”.

Here is a simple definition of this theory from Answers.com:

The marginal-productivity theory maintains that employers will only pay a wage that is, at most, equal to the amount of extra value added to the total product by one additional worker.

And here’s another from Britannica Concise

In economics, the theory that firms will pay a productive agent only what he or she adds to the financial earnings of the firm.

This is not an easy Theory to grasp for non-Economists.

But the different views that different Economists have on Marginal Productivity Theory determines what Economists and policy makers decide should be done to reduce unemployment and to achieve full employment.

Diagrams that are referred to during this interview …

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Diagram 1.

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Diagram 2.

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Diagram 3.

Also referred to during this interview:

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