Sunday, 3 January 2010

Factors of production - Labour

Factors of production Labour (human resources) refers to the human effort both in mental and physical. The factor income/return of labour is called wage, to compensate labours’ production efforts Quantity supplied of labour is in terms of working hours, so we have: Quantity supplied of labour = number of workers x average working hours. Labour supply describes quantities supplied of labour in different wage rate. In Hong Kong, the size of labour force is the part of population aged 15 or above which is willing and available to work for wages. Size and working hours of the labour can be affected in many factors, such as migration, age distribution, holidays, maximum working hours, etc. (Average) labour productivity measures average output per working hour per labour: Labour productivity = total output / (no. of working hrs)(no. of workers) It can be affected by health of workers, education and training (enhance intelligence of workers in training and develop their skills), mechanization and technological level, working environment, management (which affect their morale) and incentive to work. Mobility is a signal for efficient use of a factor of production. 1) Occupational mobility -- willingness and ease of a factor changes its occupation. Factors affecting occupational mobility: i) Retraining programmes – help workers to acquire essential skills for new jobs so that occupational mobility increases. ii) Market obstacles – labour unions and professional associations may set demanding entrance requirement to take up certain occupations -- decrease the occupational mobility. iii) Remuneration and working conditions – worse condition raises the incentive to change the job, and the occupational mobility increases. iv) Recruitment magazines, websites and employment agencies provide information about the availability of different job and assist workers to find new jobs. As a result, occupational mobility increases 2) Geographical mobility -- willingness and ease of a factor changes their living place. Factors affecting geographical mobility: i) Immigration and emigration policies limit their geographical mobility. For example, domestic worker can’t be imported from mainland. ii) Economic, political and social conditions change labour forces’ preference to settle in other areas and affect the geographical mobility. iii) Transport network and transport cost – well network Increase the geographical mobility but it’s reduced by high transportation cost in Hong Kong. The Transport Support Scheme introduced by the government in 2007 has raised the geographical mobility. iv) Market information enhances the geographical mobility of workers. Methods of payment to labour: 1) Piece rate (paid according to their output/contribution to production), it’s usually used in industries where workers’ contribution and be easily measured both in quality and quantity. To employees: Hard-working/laziness directly affect his paid. To employers: Productivity raises since workers become more hard-working, and it reduces the need for supervision against shirking. But it’s hard to measure workers’ contribution sometimes; also, quality and quantity may not be held at the same time. Example: Clothing industry, etc. 2) Time rate (paid according to their working hours), it’s usually used when the contribution is hardly measured or a high product quality is required. To employers: They can have more stable income, but they can’t raise their wage significantly even if they work harder. To employees: They don’t need to calculate worker’s contribution and administrative fee is reduced, also workers will have more time to aim on the quality of the product. But workers may shirk as the have a stable income so that more supervision is needed and raise the administration fee. Example: Sales and lifeguards. 3) Profit sharing scheme – a portion of the profit is distributed to workers. It’s used among supervisors and managers which is decisive to the profit. To employees: They may want to work harder for higher income, but they bear risk at the same time. To employers: It raises workers’ loyalty and shifts part of the business risk to the workers. But it’s hard to calculate the portion of sharing and free rider (shirkers) may appear. Sometimes the workers don’t want to bear risks. This may reduce their loyalty. Note that basic salary (time rate) + commission (piece rate) is not profit sharing. 4) Tips refer to the gift of money paid by customers to reward workers who provide direct services to them. It’s used for workers whose directly provide services to customers. To employees: Working performance directly affect their income. To employers: Supervision can be reduced; lower basic salary can be paid, tips instead, this shifts the business risk. Workers’ incentive to work increases, but they may not want to bear risk if there’s no basic salary. Example: waiter (time rate + tips), street artists (pure tips)

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