Re: How does productivity turn into higher wages?

From: Robert Vienneau (rvien_at_see.sig.com)
Date: 01/25/05 

Date: Tue, 25 Jan 2005 04:37:01 -0500

In article <CXCId.54605$Ta2.5729@fe2.texas.rr.com>, Igor
<jjweatherby@houston.rr.com> wrote:

> Bill wrote:
> > <zerge@hotmail.com> wrote in message
> > news:1106077002.589121.211450@f14g2000cwb.googlegroups.com...

> >>Less people per unit produced, sure. But not necessarily less people in
> >>absolute terms. Productivity and number of workers in absolute terms
> >>are independent variables.

> > Could be less and could be more. They are not quite independent. If you
> > do
> > nothing nothing you need the same number of people per unit of volume.
> > If you
> > do a massive automation it is possible that you may be able to increase
> > your
> > production to something far beyond what you could sell with far fewer
> > people.

> They are independent. If prices stay the same and cost of the product
> drop, unless there is a capacity constraint firms will produce more
> output. This will cause labor demand to shift out. At each wage they
> will want to hire more workers than before.
>
> Where the confusion is is that firms will hire more workers if THE WAGE
> STAYS CONSTANT. Without an increase in the supply of labor this will not
> happen. Wages will likely rise over time but unless there is a change in
> supply, firms will hire more workers in the short run. There is just
> more profit to be made for a good and the increase in production will
> fuel more workers being hired eventhough it takes fewer workers to
> produce one unit.
>
> The second part of the confusion is that you are talking about
> substituting capital for labor. The analysis is short run so capital
> does not get substituted for labor. Productivity can rise for reasons
> other than new capital. New process can be implemented, eg. the assembly
> line. This cuts cost and makes production faster but no new capital is
> involved. Workers may be trained in new techniques. There are other
> reasons for productivity gains than new machines.
>
> However, if Wages rise above capital there is a possibility that
> substitution can happen. In this case the effect is indeterminate.

The above is incorrect. The logic of long run analysis is not one
of substitution. See the following for correct long run price
theory:

 <http://www.dreamscape.com/rvien/Economics/Essays/Sraffa3.pdf>

Rising productivity turns into higher wages only if workers
agitate to make it so and they are in a position to do that. 

-- 
Mostly economics:  <http://www.dreamscape.com/rvien/#PublicationsForFun>
r           c
 v         s a           Whether strength of body or of mind, or wisdom, or
  i       m   p          virtue, are found in proportion to the power or wealth
   e     a     e         of a man is a question fit perhaps to be discussed by
    n   e       .        slaves in the hearing of their masters, but highly
     @ r         c m     unbecoming to reasonable and free men in search of
      d           o      the truth.    -- Rousseau

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