Written by John Lounsbury
There is a widely accepted concept in economics that employee compensation is related to productivity. The idea started with a 1899 book by neoclassical economist John Bates Clark, “The Distribuion of Wealth” which formulated the theory of marginal productivity founded on the hypothesis that every agent of production would receive the amount of wealth that agent produces (absent any “friction”). This can be restated as The Marginal Theory of Productivity: In a competitive market everyone earns what they produce.
Please share this article – Go to very top of page, right hand side, for social media buttons.
Blair Fix asserts that there is a serious shortcoming with the Clark theory. Clark justified the theory based on political arguments that the theoretical distribution as necessary for social stability. But the theory was never tested with data. So the theory is politically rationalized but not scientifically supported.
This week we have a lecture by Blair Fix delivered 28 January 2021 to the SEEFAR research center at Kedge Business School. In this lecture the history of the theory of human capital is developed starting with Clark in 1899 with emphasis on work since the 1950s. He finds that efforts to measure productivity differences have suffered from fundamental problems.
In this presentation Dr. Fix steps you through logical processes of evaluation of human capital theory as an explanation of income. He follows with his own research to explain the distribution of income. How he arrives at his conclusions is methodical and easily followed. The result is that all the customary proposals for the basis of income distribution within a firm (i.e. IQ, location, race, religion, parental income, sex, age, occupation, education, and others) show limited correlation to income compared to the hierarchial position within the firm. An extension across many firms and sectors finds the same predominance of hierarchial position (independent of all other characteristics) with the highest correlation with income.
These results fundamentally challenge the theory of marginal productivity and the very idea of human capital.
He concludes that the distribution of income is substantially determined by social structure rather than economic variables. He posits that future research should concentrate on social traits to understand distribution of income. It seems that there may be coming fundamental changes to Theory of the Firm as well as macroeconomical work on income distribution.
All of this presentation comes within this 50 minute video, which has some excellent graphics included.
Source: YouTube
See also:
The Rise Of Human Capital Theory (Blair Fix, 05 February 2021)
Documentary Of The Week: Power Theory Of Personal Income (07 January 2021)
.
include(“/home/aleta/public_html/files/ad_openx.htm”); ?>
