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BLS explained the gap between productivity and compensation can be divided into two components, the effect of which varies by industry: 1) Recalculating the gap using an industry-specific inflation adjustment ("industry deflator") rather than consumption (CPI); and 2) The change in labor's share of income, defined as how much of a business ...
The theory of compensating wage differentials, by Adam Smith, provides a theoretical framework of the ideology behind pay differences. The theory explains that jobs with undesirable characteristics will compensate with higher wages compared to the popular, more desirable jobs, who provide lower wages to its workers. [13]
Income inequality is a major factor in wage compression and could be seen as the cause of other effects listed on this page. For example, income inequality may result in greater employee turnover, effect the firm's performance via higher levels of employee dissatisfaction and create conflict between workers of all manner.
Firms operating as monopolies or in imperfect competition face downward-sloping demand curves. To sell extra units of output, they would have to lower their output's price. Under such market conditions, marginal revenue product will not equal . This is because the firm is not able to sell output at a fixed price per unit.
The theory’s main point is that promotions are a relative gain. Regarding compensation, the level of compensation must be strong enough to motivate all employees below the level of compensation who aim to be promoted. If the pay spread between promotions is larger, the incentive of employees to put in effort will also be larger.
Keynes does not accept the quantity theory. He writes effective demand [meaning money income] will not change in exact proportion to the quantity of money. [17] The correction [18] is based on the mechanism we have already described under Keynesian economic intervention. Money supply influences the economy through liquidity preference, whose ...
Later microeconomic theory distinguished between perfect competition and imperfect competition, concluding that perfect competition is Pareto efficient while imperfect competition is not. Conversely, by Edgeworth's limit theorem , the addition of more firms to an imperfect market will cause the market to tend towards Pareto efficiency. [ 29 ]
It anticipates a number of developments in distribution and growth theory and remains a standard work in labour economics. [1] Part I of the book takes as its starting point a reformulation of the marginal productivity theory of wages as determined by supply and demand in full competitive equilibrium of a free market economy.