Geoscience Reference
In-Depth Information
standard of living. Consequently, productivity supports economic satisfac-
tion in a series of often-complex relationships, and increased productivity
supports not only higher wages for the individual over time but also eco-
nomic expansion and growth for the broader economy.
So far, this is standard modern industrial thinking. Productivity in the labor
markets leads to purchasing power in the final product markets, and the circu-
lar-flow economy remains in balance, and even expands over time. But the plot
thickens when we remind ourselves that human labor is not the only valuable
resource an employer seeks to acquire. There are other factors related to pro-
duction, such as land, capital, and various raw physical materials. In its purest
form, the discipline of economics is designed to focus on the productivity of all
inputs (output per acre, productivity of capital, efficient use of land, energy effi-
ciency, and so on), not just on labor. We pursue this thread at greater length in
the final chapter of this section, which deals with the macroeconomic system.
It is our strong belief that many of the perceived threats to the environment
and the carrying capacity of the globe stem from a failure to acknowledge
this reliance on all resources and consequently concentrate single-mindedly
on productivity per worker . In order to explore the implications of this narrow
focus, let us shift our attention to the economic notion of capital, which for
our purposes can be broadly defined as factory, equipment, and machinery.
Economic theory holds that the components of production, such as capital
(the machine) and labor (the person running the machine), combine in some
way to create output. The exact manner in which they combine is defined
by the state of technology. And the theory contends that each factor should
be compensated according to its actual contribution to the final, measurable
output of the product.
Any adjustment, technological or otherwise, which increases the produc-
tivity of one component, decreases the productivity of the other. The produc-
tivity of labor and the productivity of capital each operate in the opposite
direction of the other, because in economic theory, they are analyzed as a
mix (i.e., the capital/labor ratio).
Consequently, a resource that enjoys increased productivity, for whatever
reason, should receive higher compensation in the form of an increased share
of the incoming revenues. This, of course, implies a decrease in the relative
share of the incoming revenue going to the other component or components.
In the absence of growth and expansion, what one gets, the other does not.
The law of diminishing returns holds that productivity of the last pro-
ductive component to be added (either capital or labor) will normally drop
the more there is of it. In other words, if a business hires more workers, the
incremental increase in productivity of the last hired worker drops when
compared with the productivity of the other workers, assuming a fixed amount
of capital . This principle holds true in either direction. As more of either, capi-
tal or labor, is employed, the incremental productivity of that more abun-
dant component drops as the incremental productivity of the less abundant
component increases. Therefore, in order to increase the productivity of one
Search WWH ::




Custom Search