The following essay will discuss different aspects of the difference in individual's earnings. First marginal productivity will be discussed followed by employment discrimination. Third will be the importance and benefits of investing in human capital, then I will move into the way The Poverty Threshold Income Level relates to differentials in earnings. Lastly I will talk about income mobility. There are many reasons and many opinions as to why some people make more than others do. It is a subject that is very much open to debate. I hope the following gives you an idea of how I feel about it, of course while incorporating me important economic concepts!.
The fact is every employer on the face of the planet wishes to make a profit from everyone they hire. Why would they not? Nobody wants to lose money! In explaining the theory of marginal productivity this is all made clear. Before a firm hires an employee they must make sure and look at their marginal revenue production or MRP. MRP is the change in total revenue a firm will make resulting from one additional hire. To put it simply a firm wishing to make a profit, this should be most, will only hire a person or additional unit of resource if the marginal revenue exceeds the cost of employing the resource. Marginal revenue is the amount of revenue that the additional worker will provide the company. For example, a firm would not hire an employee at a salary of $35,000 if they did not think the employee would cover the actual cost of his employment and then some. It would not be profitable, which is what every firm is working for. To sum up the theory of marginal productivity firms cut down on their per-unit costs of production when they hire additional units or people. This is only true though as long as the units" marginal productivity brings in enough revenue to the company to cover its cost and then some. An employee is basically a unit of input to a firm.