Marginal productivity accounts of executive pay are tautological and mask political power

Evidence

An alternative interpretation of the effect of financialization on inequality is that the productivity of managers and capital has risen as a result of financial investment strategies. If this was the case, then increases in capital’s and officers’ share of income simply reflect increases in their marginal productivity in the era of financialization. We find this interpretation unsatisfying on multiple levels. First, since productivity is not observed but inferred circularly in terms of income distributions, any marginal productivity interpretation is tautological in essence. Second, this interpretation depicts productivity as an individual attribute rather than an organizational outcome that is embedded in a particular social configuration of production. Previous studies and anecdotal evidence have demonstrated that the financial activities operated by nonfinance firms are often heavily backed by the cash flow and the assets generated by production ðOrhangazi 2008Þ. Thus, the increase in “marginal productivity” of the top executives and financial workers often comes with the price of diminishing investments in the “marginal productivity” and job security of other workers. Third, the marginal productivity thesis tends to conceive of compensation as a product of inevitable market or technological forces but dismisses its very political and social nature. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 175

Categorization

• DEFINE: Crisply lays out the three decisive critiques of the marginal-productivity thesis — a reusable analytical structure for dismantling productivity-based justifications.
• XREF: connects to: Marginal-productivity explanations of executive pay are tautological and misattribute organizational outcomes — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 175; Marginal-productivity theory functions as claims-making discourse rather than wage science — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 180

Related

• Marginal-productivity explanations of executive pay are tautological and misattribute organizational outcomes (similarity 0.95)
• Marginal-productivity theory functions as claims-making discourse rather than wage science (similarity 0.87)
• Inequality dimensions reflect one institutional shift toward financialization (similarity 0.82)
• Nonfinance firms’ financial gains are funded by production-derived cash flows, not new productivity (similarity 0.81)
• Financialization does not measurably raise firm profits or financial-asset productivity. (similarity 0.79)

Broader Connections

• Marginal-productivity explanations of executive pay are tautological and misattribute organizational outcomes #corroborates (0.98) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 175
• Marginal-productivity theory functions as claims-making discourse rather than wage science #expands (0.85) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 180