Although the marginal productivity theory of income distribution is a well-established part of economic theory, it is a source of some controversy. There are two main objections to it.

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First, in the real world we see large disparities in income among workers who, in the eyes of some observers, should receive the same payment. Perhaps the most conspicuous examples in the United States are the large differences in the average wages between women and men and among various racial and ethnic groups. Do these wage differences really reflect differences in marginal productivity, or is something else going on?

Second, many people wrongly believe that the marginal productivity theory of income distribution gives a moral justification for the distribution of income, implying that the existing distribution is fair and appropriate. This misconception sometimes leads other people, who believe that the current distribution of income is unfair, to reject marginal productivity theory.

The main conclusion you should draw from this discussion is that the marginal productivity theory of income distribution is not a perfect description of how factor incomes are determined but that it works pretty well. The deviations are important. But, by and large, in a modern economy with well-functioning labor markets, factors of production are paid the equilibrium marginal revenue product—the marginal revenue product of the last unit employed in the market as a whole.

It’s important to emphasize, once again, that this does not mean that the factor distribution of income is morally justified.