3. Labour Markets - Labour Demand & MRP criticisms

Question 1

What is an assumption of the MRP theory and how does it create a problem?

Answer 1

It is assumed firms KNOW the productivity of an individual and know their MRP compared to there MC - they may not always know this meaning they may not always employ the correct level of workers

Question 2

How does teamwork create problems for the MRP theory?

Answer 2

When workers work in teams it is very difficult to know the individual productivities of each worker - and the MRP they bring individually compared to individual MC

Question 3

How does self-employment create problems for the MRP theory?

Answer 3

Self-employed people don’t pay themselves on the basis of their MRP - this distorts the market figures etc.

Question 4

What assumption about the structure of the labour market do we make and how does it cause problems for MRP theory?

Answer 4

We assume that firms are demanding workers in perfectly competitive markets - this however is not always the case - trade unions for instance challenge may bargain for higher wages even if they exceed a workers MRP

Question 5

What are the 4 key challenges to the MRP theory of labour demand?

Answer 5

1. Knowledge of MRP and productivity2. Teamwork 3. Self-employment4. Market structures - not always perfectly competitive