CLEAR IT UP

Do Profit Maximizing Employers Exploit Labor?
If you look back at Figure 14.4, you will see that the firm pays only the last worker it hires what they’re worth to the

firm. Every other worker brings in more revenue than the firm pays them. This has sometimes led to the claim that

employers exploit workers because they do not pay workers what they are worth. Let’s think about this claim. The

first worker is worth $x to the firm, and the second worker is worth $y, but why are they worth that much? It is

because of the capital and technology with which they work. The difference between workers’ worth and their

compensation goes to pay for the capital and technology, without which the workers wouldn’t have a job. The

difference also goes to the employer’s profit, without which the firm would close and workers wouldn’t have a job.

The firm may be earning excessive profits, but that is a different topic of discussion.

What Determines the Going Market Wage Rate?
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