1. Mr. Bernstein Module 73: Theories of Income Distribution December 2017
AP Economics
Mr. Bernstein
Module 73:
Theories of Income Distribution
December 2017

2. AP Economics Mr. Bernstein
Marginal Productivity Theory of Income Distribution
Marginal Productivity at equilibrium determines division of income among factors of production
Can also explain why some workers are paid more than others

3. AP Economics Mr. Bernstein
Marginal Productivity and Wage Inequality
Compensating Differentials
ie Graveyard shift
Differences in Talent
ie All-Star Pro Athlete
Human Capital
ie Master’s Degree

4. AP Economics Mr. Bernstein
Marginal Productivity and Wage Inequality
Conditions where employees with similar skills may receive differing wages:
Market Power
Unions
Efficiency Wages
Incentives for performance increases productivity
Reduces cost of employee turnover
Discrimination
Supply and Demand should eliminate discrimination
Could be explained by reduced access to training, etc.
Perceptions of skills distorted by bias

5. AP Economics Mr. Bernstein
Does MP Theory Really Work?
Does research conclude income differences are due to differences in productivity?
If not…,
MP Theory is rejected