Assumptions of the theory

  • Employers are able to measure and predict in advance the marginal products of labour.
  • There is free and complete competition among the employers for workers.
  • There is free and, complete competition among, workers for jobs.
  • labour and capital are perfectly mobile.'
  • Labour and capital are fully employed.
  • Labour-is homogenous.
  • There is no government interference in wage determination or agreements.
  • The bargaining powers of labour and management or employers are equal.