Productivity and Standard of Living-PEM PROJEC

7/29/2019 Productivity and Standard of Living-PEM PROJEC

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Productivity and Standard of

livingC.YUVRAJ

M.SNEHA MEDAPPA

MAANCHI AGARWALVISHAL KUMAR


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Standard of living

The extent to which a person is able to provide the things thatare necessary for sustaining and enjoying life.

Standard of living of a representative family differs greatly indifferent parts of the world.

What is considered a necessity in one part of the world couldbe considered a luxury in the other.

Basic necessities of a minimum decent standard of living:Food, clothing, housing and hygiene. Also, security and

education also considered constituents.

Greater the amount of goods and services produced in anycommunity, the higher its the average standard of living.


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Standard of living

There are two ways of increasing the amount of goods andservices produced:

- Increase the employment and investment in creating jobs. Sothat more people are producing goods required for the society.

- Increase productivity. Same amount of labor produces moregoods.

We want:

More and cheaper food by increase in agricultural productivity

More and cheaper clothing and housing by increased industrialproductivity

More hygiene, security and education by increasing overallproductivity.


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Productivity

Ratio between output and input.

Arithmetic ratio between the amount produced and the amount

of any resources used in the production.

The resources may be: land, material, plant, machines, tools,labor. It could be combination of all!

Over a period of time, one can say thatproductivity has

increased.

How?

Combination ofimproved technology, better planning, greater

skills etc.


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Productivity

Note that, increased production does not mean increased

productivity.

Higher productivity means that more is produced with the

same expenditure of resources; that is, at the same cost in

terms of land, material, machine, time or labor.

Alternatively, same amount is produced at less cost in terms of

land, labor, material etc; thereby releasing some of these

resources for the production of other things.


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Productivity and standard of living

If more is available at the same cost, or the same amount isavailable at lesser cost the whole community benefits.

As per the ILO, higher productivity provides ways for raising

the standard of living by:1. Larger supplies of both consumer goods and capital goods at

lower cost and prices

2. Higherreal earnings

3. Improvement in working conditions, e.g. by reduced workinghours

4. In general, strengthening of the economic foundations ofhuman well-being.


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A typical family with all their possessions inthe U.K., an advanced economy

Real GDP per capita: $36,600

Life expectancy: 80.7 years

Adult literacy: 99%


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A typical family with all their possessions inMexico, a middle income country

Real GDP per capita: $14,800Life expectancy: 76 years

Adult literacy: 86%


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A typical family with all theirpossessions in Mali, a poor country

Real GDP per capita: $1,100

Life expectancy: 53 years

Adult literacy: 31%


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FYI: The Production Function Economists often use a production function to

describe the relationship between the quantity

of inputs used in production and the quantity

of output from production.


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FYI: The Production Function

Y = A F(L, K, H, N)

Y= quantity of output

A = available production technology

L = quantity of labor K= quantity of physical capital

H = quantity of human capital

N = quantity of natural resources F( ) is a function that shows how the inputs are

combined.


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A production function has constant returns to

scale if, for any positive numberx,

xY = A F(xL, xK, xH, xN)

That is, a doubling of all inputs causes the

amount of output to double as well.


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Production functions with constant returns to

scale have an interesting implication.

Settingx = 1/L,

Y/ L = A F(1, K/ L, H/ L, N/ L)

Where:

Y/L = output per worker

K/L = physical capital per workerH/L = human capital per worker

N/L = natural resources per worker


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The preceding equation says that productivity

(Y/L) depends on physical capital per worker

(K/L), human capital per worker (H/L), and

natural resources per worker (N/L), as well as

the state of technology, (A).


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Economic Growth and Public Policy

Government Policies That Raise Productivity

and Living Standards Encourage saving and investment.

Encourage investment from abroad Encourage education and training.

Establish secure property rights and maintainpolitical stability.

Promote free trade.

Promote research and development.


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Managements responsibility

The main responsibility for raising productivity in an

individual organization lies with the management.

It can implement productivity programs.

It can create a positive environment and obtain co-operation ofthe employees.

Trade unions should encourage its members to provide such

co-operation when the productivity program is beneficial to

workers, as well as the organization on the whole.

We will look at managements role in increasing productivity

of individual resource:


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Productivity of material

At the design stage:

Ensure least consumption of material,

Purchase equipments and plants such that consumption ofmaterial is economical.

At the operation stage:

Use of correct process

Right use of the process

Operator training

Proper handling and storage of products at all stages

Proper packaging to reduce damage in transit


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Productivity of land, machines and manpower

Effective utilization and maximum productivity is an

important source of cost reduction.

Reduction in the original specification, before the land is

purchased saves capital outlay (as well as interest expenses)

A savings in material which has to be imported saves import

duty and excise.

Productivity of manpower and machines is typically measuredin terms of time (man-hours; machine-hours).


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Factors tending to reduce productivity

Work content added due to the product

The product or its components are designed such that it is

impossible to use most economical manufacturing processes.

Excessive variety or lack of standardization. Incorrect quality standards.

Excessive amount of material removal required.


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Work content added due to process

Incorrect machine (and/or hand tool) used

Process not operated properly

Non-optimal layout with wasted movements. Working methods of operation causing wasted movements,

time and efforts.


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Ineffective time due to management

Marketing policy which demands unnecessarily large numberof products.

No standardization of components between as well as within

products. Failing to meet customers requirement from the beginning.

No plan for flow of work.

Improper supply of material, equipment.

Improper maintenance of plant and machines. Insufficient safety measures.

Improper working conditions resulting in interrupted work.


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Ineffective time within the control of worker

Taking time off without good cause: by lateness, by idling at

work etc.

Careless workmanship causing scrap or rework.

Failing to observe safety standards.


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Wealth by Gini Coefficient


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Summary Economic prosperity, as measured by real GDP

per person, varies substantially around theworld.

The average income of the worlds richestcountries is more than ten times that in theworlds poorest countries.

The standard of living in an economy dependson the economys ability to produce goodsand services.


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Summary Productivity depends on the amounts of

physical capital, human capital, natural

resources, and technological knowledge

available to workers.

Government policies can influence the

economys growth rate in many different

ways.


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Summary The accumulation of capital is subject to

diminishing returns.

Because of diminishing returns, higher saving

leads to a higher growth for a period of time,

but growth will eventually slow down.

Also because of diminishing returns, the

return to capital is especially high in poor

countries.

Productivity and Standard of Living-PEM PROJEC

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