Wage Determination: Reconciling Theory and Practice

Abstract . The marginal productivity theory of wages and employment has proved, over the years, to be a useful basis for analyzing wage and employment relationships. But in the real world wage rates and the size of the work force appear to be set by other considerations. The article reviews efforts by economists to take these into account. Evidence of the ability of management to manipulate wages is presented. An attempt is made to reconcile practice and theory by taking into account sociological and psychological variables and harmonizing them with the economic variables.