There are a number of shortcomings in the neo-classical theory of the labour market:
1It is very difficult in practice to measure the marginal productivity of workers.
2The theory implies that wages will be flexible both upwards and downwards in the face of changing market conditions. In reality this is not usually the case. In times of labour shortage, it is common for firms to make greater use of overtime rather than offer higher wages. Similarly, in times of excess labour supply, in the short term at least, the firm is likely to use less overtime and more short-time working. Firms adjust quantities rather than wages.