What are the limitations of marginal productivity theory?


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Marginal productivity theory is a concept devised and explored by various writers circa the 19th century. 

It is an economic theory that focuses on the difference between the value of labour output verses the cost of labour. It suggests that in the interest of the maximisation of profit, firms hire by comparing the differences between productivity and cost of hiring. 

The limitations of this theory are that, whilst the theory may sometimes be applicable, in general it can only be true under equal comparisons. For example, it does not take into account that employment outsources a heterogenous body of people and thus productivity can not be equally quantified. Not only this, but it assumes perfect competition in the work force.

One of the major limitations of the theory is that it is static, where in fact it is a dynamic construct. Marginal productivity theory does not account for the boundless and consistently changing mode of economy, and all things under its umbrella.

I hope this helps.

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