Marginal Product of Labour

… a core concept in Economic Analysis and Atlas102

Click for MRU video

Click for MRU video

Concept description

Alex Tabarrok (reference below, video on right) defines the marginal product of labour is the increase in a firm’s revenues created by hiring an additional labourer.

NOTE: Some authors use the term marginal revenue product of labour (measured in units of currency) synonymously with marginal product of labour, while others  use marginal product of labour as a quantity of output that must be multiplied by the marginal revenue of output to equate to the marginal revenue product of labour (see Marginal Revenue Product of Labour).

Determination of wages

Tabarrok describe the demand for labour as a Derived Demand (derived from the marginal product of labour):

  • The marginal product of labour declines as more labour is used
  • Firms will hire as long as Wage < marginal product of labour (MPL)
  • This means that the firm’s Demand for Labour = MPL


MarketForJanitorsIndividual and market supply of labour

An individual’s supply of labour can have a backward bending supply curve over some portion of the curve if that person “buys leisure” by choosing to work fewer hours as income increases. However, the market supply curve will be upward sloping.


Why do janitors earn more in the U.S. than in India?

Tabarrok notes that janitors earn more in the U.S. than in India, not because janitors sweep more floor area per hour in one country than another but because:

  1. There is a higher demand curve for janitors in the U.S. because an American office building is more productive (more and better capital, office workers more productive) and therefore it is more valuable to keep an American office clean than an Indian office clean, and
  2. There is a lower supply curve for janitors in India because India has more low skilled workers than in the U.S.


Practice questions

From, accessed 8 May 2016.

  1. Determine whether the following statements are true or false. The marginal product of labor is

Alex Tabarrok, The Marginal Product of Labor (10-minute video), Marginal Revolution University, at, accessed 8 May 2016.

Atlas topic and subject

Labour Markets, Transfers, and Personal Taxes (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Page created by: Ian Clark, last modified on 18 April 2016.

Image: Alex Tabarrok, minute 0:15 in The Marginal Product of Labor (10-minute video), Marginal Revolution University, at, accessed 8 May 2016.