What is the definition of the marginal product of labor?

The marginal product of labor refers to the additional output generated by the last worker hired. This concept is essential in understanding how employment levels impact production and efficiency in the labor market. When a firm hires an additional worker, the marginal product of that worker reflects the increase in total output directly resulting from that hire. This helps businesses determine how many workers to employ, as they assess whether the added output justifies the labor costs.

In contrast, total output produced by all workers represents the overall production level, without focusing on the impact of an individual worker. Average output across all employees calculates the mean productivity of all workers, rather than isolating the contribution of the most recently hired employee. Output loss from reducing the workforce describes the decline in production that follows layoffs, which again does not have the specific focus on the contribution of an additional worker that defines the marginal product of labor.