Thursday, January 24, 2013

How Should We Explain Labors Declining Share Of Income?

Classical economic theory attempts to explain labor's share of income in terms of the marginal product of labor.  This is a micro theory that has many problems.  One of the problems is that there is no measure of the marginal product of labor or the marginal product of capital.  It is a theory with undefined concepts.  Paul Krugman attempted to explain the widening gap between labor's share of income and the share going to capital by introducing the concept of capital bias.  Economist's shy away from using Marx's explanation of this gap for a variety of reasons. It is bad for one's career to even mention Marx in favorable terms.  This article makes the case for Marx's labor theory of value as the better explanation for what we are currently observing.

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