Wage differentials that arise because of innate differences in ability or talent are consistent with the marginal productivity theory of income distribution.

Question

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The marginal productivity theory of income distribution states that wages are based on the marginal productivity of labor, meaning that individuals with higher levels of productivity will earn higher wages. This theory is consistent with innate differences in ability or talent resulting in wage differentials.

Wage Differentials That Arise Because of Innate Differences in Ability