Human cognition

One objection is that the information and computational requirements that are necessary to operationalize the marginal productivity theory generally exceed the mental or cognitive ability of most employers and managers. For example while concept of marginal productivity is clear in theory can the typical manager of a firm actually measure or even approximate the likely increase in production from hiring a new employee?

For a small firm with fairly simple production processes the answer may be yes. However the difficulties of measuring the marginal product in large-scale organizations with a highly interdependent production process preclude the use of marginal calculations. Even if a marginal product can be calculated, simple observation or reasoning would then ask how they can meaningfully compare a worker’s marginal revenue product with the wage when product prices and output levels are constantly changing. Finally the critics argue that case studies and interviews reveal that the actual process of business decision making does not follow the marginal calculations assumed in the theory.

Many have reasoned in several ways. First although managers may not consciously use marginal calculations the decisions they reach approximate those predicted by the theory if the firm is to survive in a competitive business world. Second others have reasoned that managers may not be able to identify the marginal contribution of an individual blue collar or to adjust employment one employee at a time as the theory presumes. However they can identify the revenues and costs associated with particular lines of activity (in example - the baggage handling in an airport or the night shift) and do adjust employment in these activities in light of their contributions to profit.