Strictly Labour Market theory?

One of the most cumbersome terms in Economics is the Marginal Revenue Product of Labour (MRPL), which we encounter during our A2 Micro lessons. The phrase itself is one of those clumsy things that many students find hard to get clear in their minds quickly.

The standard definition of MRPL - i.e. “the change in total revenue for a firm from selling the output produced by additional workers employed”, whilst logical enough, isn’t always the easiest for many people to grasp. In the real world it is often hard to identify situations when this actual decision would be made - can you imagine the HR manager in a supermarket trying to work out if taking on one extra sixth former will generate enough extra revenue to cover their minimum wage (or similar) per hour?

This excellent BBC article featuring an edited version of an interview with Bruce Forsyth from tonight’s BBC2 Newsnight hopefully clarifies things - basically Bruce, at 81 years old and still going strong explains that in the world of entertainment your wages / salary depends on the ability to ‘put bums on seats’.

In the real world the idea of measuring MRPL for an individual worker tends most obviously to apply to ‘special’ workers, whose contribution can easily be identified - witness the willingness of Spanish football giants Real Madrid to pay such an astronomical sum to Manchester United for the services of Cristiano Ronaldo , whose biggest benefits to his new club are expected to be in terms of the money he generates off the pitch.

Alternatively when a business opportunity or growth comes along a firm will budget and plan for labour costs for staffing it which obviously have to be less than the revenue they are expecting to generate - this article about the supermarket chain ASDA recruiting 10,000 seasonal staff this winter in addition to 7,000 new jobs they have created to cope with a forecast rise of 1 million customers.