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Assess the usefulness of the marginal productivity theory of wages in explaining how wages are determined.
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Assess the usefulness of the marginal productivity theory of wages in explaining how wages are determined. Many theories have been advanced to explain the nature of wages. The first of them was the subsistence theory of wages, also called the "iron law of wages," of which David Ricardo was one of the main exponents. The theory maintains that wages cluster around the bare subsistence level of workers. A wage rate much above the subsistence level causes an increase in the number of workers; competition will then lead to a depression of wages back toward the cost of subsistence. Wages that are below subsistence reduce the size of the working population; in that case competition will raise wages, but only up to the subsistence level again. In the surplus-value theory as propounded by Karl Marx, the value produced by the worker in excess of what is paid in wages is called surplus value....
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