The productivity of employees depends not only on their ability and the amount invested in them both on and off the job but also on their motivation, or the intensity of their work. Economists have long recognized that motivation in turn partly depends on earnings because of the effect of an increase in earnings on morale and aspirations.Equation (17), which was developed to show the effect of investments outside the firm financed by an increase in earnings, can also show the effect of an increase in the in tensity of work "financed" by an increase in earnings. Thus W and MP would show initial earnings and productivity, C the increase in earnings, and G the gain to firms from the increase in productivity caused by the "morale" effect of the increase in earnings. The incentive to grant a morale-boosting increase in earnings, therefore, would depend on the same factors as does the incentive to grant an increase used for outside investments. Many discussions of wages in underdeveloped countries have stressed the latter,38 while earlier discussions often stressed the former.