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Because if market is efficient the wage should equal marginal product of labor, which is basically what defines productivity. Also, it says “seemingly”, i.e. i
by LudwigNagasena 6y ago
Because if market is efficient the wage should equal marginal product of labor, which is basically what defines productivity.
Also, it says “seemingly”, i.e. if you don’t take a closer look. In fact it completely reflects predictions of classical economics. It’s just that the model is more complex because it has heterogeneous sectors.
- aaron-santos 6y agoNot trying to be obtuse, but why should an employer want to employ anyone at all if the market was effecient?
- ghaff 6y agoCoase would have said transaction costs. An efficient market doesn't imply no transaction costs. And if you take things out of economic theory it's pretty obvious why you'll hire people for some things and not for others.
- ivalm 6y agoBecause access to capital gives employer some fraction of employee productivity as a reward. The exact fraction depends where exactly they land in the zone of possible agreement. In transactions (even efficient ones) there is usually hysteresis.
- LudwigNagasena 6y agoWell, in an ideal model there is indeed no difference between any such decision. But as you can ask “why should an employee do something”, you can also ask “why shouldn’t an employee do something”?