Productivity and Standard of living

C.YUVRAJ M.SNEHA MEDAPPA MAANCHI AGARWAL VISHAL KUMAR

Standard of living
The extent to which a person is able to provide the things that are necessary for sustaining and enjoying life. Standard of living of a representative family differs greatly in different parts of the world. What is considered a necessity in one part of the world could be 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 any community, the higher its the average standard of living.
2

Standard of living
There are two ways of increasing the amount of goods and services produced: - Increase the employment and investment in creating jobs. So that more people are producing goods required for the society. - Increase productivity. Same amount of labor produces more goods. We want: More and cheaper food by increase in agricultural productivity More and cheaper clothing and housing by increased industrial productivity More hygiene, security and education by increasing overall productivity.
3

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 that productivity has increased. How? Combination of improved technology, better planning, greater skills etc.

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.

Productivity and standard of living

If more is available at the same cost, or the same amount is available at lesser cost the whole community benefits. As per the ILO, higher productivity provides ways for raising the standard of living by: Larger supplies of both consumer goods and capital goods at lower cost and prices Higher real earnings Improvement in working conditions, e.g. by reduced working hours In general, strengthening of the economic foundations of human well-being.
6

1.

2. 3.

4.

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

Real GDP per capita: $36,600 Life expectancy: 80.7 years Adult literacy: 99%

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

Real GDP per capita: Life expectancy: Adult literacy:

$14,800 76 years 86%

A typical family with all their possessions in Mali, a poor country

Real GDP per capita: $1,100 Life expectancy: 53 years Adult literacy: 31%

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.

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.

FYI: The Production Function

A production function has constant returns to scale if, for any positive number x, xY = A F(xL, xK, xH, xN) That is, a doubling of all inputs causes the amount of output to double as well.

FYI: The Production Function

Production functions with constant returns to scale have an interesting implication.
Setting x = 1/L, Y/ L = A F(1, K/ L, H/ L, N/ L)
Where: Y/L = output per worker K/L = physical capital per worker H/L = human capital per worker N/L = natural resources per worker

FYI: The Production Function

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).

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 maintain political stability. Promote free trade. Promote research and development.

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 of the 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:
16

Productivity of material
At the design stage: Ensure least consumption of material, Purchase equipments and plants such that consumption of material 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

17

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 measured in terms of time (man-hours; machine-hours).

18

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.

19

Factors tending to reduce productivity

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.

20

Factors tending to reduce productivity

Ineffective time due to management Marketing policy which demands unnecessarily large number of 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.
21

Factors tending to reduce productivity

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.

22

Wealth by Gini Coefficient

Summary
Economic prosperity, as measured by real GDP per person, varies substantially around the world. The average income of the worlds richest countries is more than ten times that in the worlds poorest countries. The standard of living in an economy depends on the economys ability to produce goods and services.

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.

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.