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The graph of the graph of productivity and real median income, as State of Working America reports, shows a gap between change in productivity and change in real median family income that has been increasing with time. The changes were equivalent from the year 1947 till the…
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Download file to see previous pages... Organizations operate with the aim of attaining economic efficiencies. Production is guided by the law of marginal utility and continues until marginal returns equal marginal cost of production. Beyond this point, production is inefficient and organizations stop production. The graph shows an increasing trend in production and therefore explains that marginal utility from production is still lower than unit production cost. Based on the theory, advantage in production cost or higher demand into higher utility could explain the trend. The theory however fails to recognize the role of social utility in production and resource distribution (The State of Working America, 1; Wolf and Reinsick 52- 55).
Labor theory of value explains that labor cost is the main driver of commodities’ cost, and therefore indicators of productivity. The graph, based the theory, shows that labor costs have been increasing at a higher rate than median family income. It also demonstrates inequality in labor wages. The theory’s rationale is similar to that of neoclassical theory (The State of Working America 1; Wolf and Reinsick 169).
Keynesian theory explains a relationship between productivity and aggregate demand. The graph, based on the theory shows an increase in demand despite lower increase rate in income and therefore suggests increase in number of households towards higher demand and productivity values. Rationale of Keynesian theory is similar to that of neoclassical theory (The State of Working America 1; Wolf and Reinsick 126).
Institutionalist methodology focuses on social utility instead of economic efficiency. Based on the approach, the graph demonstrates increasing investments into social utilities while demand driven production could have similar changes to median income. The investments could be from the government and private entities. This is contrary to neoclassical perspective economic efficiency (The State of Working America ...Download file to see next pagesRead More
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