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Uncertainty and the marginal revenue product–wage gap

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  • Roger Blair
  • Perihan Saygin

Abstract

The presence of uncertainty and risk aversion compounds the effects of labor market imperfections and thereby widens the marginal revenue product of labor (MRPL) and wage gap. This paper analyzes the case of uncertainty in labor efficiency or job separation and its implications for managerial decisions. We show that when labor efficiency is subject to stochastic fluctuations, risk aversion leads to a gap between the MRPL and the wage even under conditions of perfect competition. If job separation costs are stochastic, the gap is due to monopsony power and the influence of risk aversion.

Suggested Citation

  • Roger Blair & Perihan Saygin, 2021. "Uncertainty and the marginal revenue product–wage gap," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 564-569, April.
    • Handle: RePEc:wly:mgtdec:v:42:y:2021:i:3:p:564-569
    DOI: 10.1002/mde.3254
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    1. Christopher D. Blake, 2022. "A method for comparing compensation and productivity levels across US regions," SN Business & Economics, Springer, vol. 2(12), pages 1-30, December.

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