It is argued that the VMP should be equal to the employee wages because the two are interactive; VMP is based on the increased value that each employee contributes to the product. Since no worker can be guaranteed to contribute X product or Y value to the VMP, this is an unknown, and therefore volatile.
There are a variety of ways VMP can affect labor:
- If prices are set too high, demand for the product will drop, requiring a drop in labor.
- A similar effect will occur if the quality of the product does not match its price
- If one employee contributes significantly more to VMP than another, this will potentially upset the labor market within the company as it seeks more workers of a similar nature, or piles more responsibility on them, potentially driving them away.
The inverse of any of the above would drive an increase in labor demand.