In competitive markets, workers earn a wage equal to the value of their marginal contribution to the production of goods and services. There are,’ however, many things that affect the value of the marginal product. Finns pay more for workers who are more talented, more diligent, more experienced, and more educated because these workers are more productive. Firms pay less to those workers  against whom customers discriminate because these workers contribute less to revenue.

The theory of the labor market we have developed in the last two chapters explains why some workers earn higher wages than other workers. The theory does not say that the resulting distribution of income is, equal, fair, or desirable in any way. That is the topic we take up in Chapter 20.