Marginal Productivity Theory of Income DistributionThis is a featured page

In marginal productivity theory of income distribution, income gets distributed accodring to contribution to society's output.

However, criticisms of this theory of income distribution include:

1) Inequality
  • productive resources are very unequally distributed
  • individuals encounter substantially different opportunities to enahce their productivity through education/training/use of more and better equipment
  • ownership of property resources is unequal (ex: many landlords and capitalists obtain their property by inheritance rather than through their own productive effort)

2) Market imperfections
  • Discrimination in the labor market can distort wage rates and resource prices
  • Labor unions, professional associations, and occupational licensing laws provide monopoly power to house holds; therefore, allowing them to sell their service at an inequilibrium price
  • Income share based on marginal productivity only works in a competitive resource market, but in reality, most resource markets are incompetitive, which allows discriminations to take place.

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