Utility Marginality There Are Two Main Ways

Utility Marginality

There are two main ways to increase the productivity of a labor force. Productivity is the amount of work that a workforce does -- the output per unit of labor (Riley, 2013). One way is to lower the denominator, which is to say have fewer workers. If the remaining workers work harder, the country can keep its output at the old level, while doing it with fewer workers. This will increase the productivity of the country's workforce.

The other main way to increase the country's productivity is to increase the numerator. This can be done through new technology, innovation, new machinery or anything else that helps improve the worker output. When output is increased and the number of workers stays the same, productivity increases. New innovations can also decrease the number of workers, if it replaces workers. If it replaces workers at the same time it increases production, all the better.

As a matter of public policy, increasing productivity probably involves making technology investments that will build the country's capabilities. China seeks technology transfer by becoming a manufacturing hub, for example. Brazil has focused on recent years on education as a means of improving productivity because often knowledge workers produce more than agricultural workers. The United States has seen increases in worker productivity fairly steadily as the result of policies that encourage innovation, such as free markets but also support for a vast higher education system. From a policy perspective, therefore, there are a number of options. A riskier but quicker option is to lay off worker in the public service and demand more productivity from the ones who remain.

2. Changes in technology can have a significant impact on the demand for labor. Many new technologies serve to reduce the demand for labor, because they replace people in the performance of menial tasks. However, this is not a universal relationship. For example, new technology often creates positions related to its use, development and maintenance. Where buggy drivers and horseshoe makers may have gone out of business with the invention of the car, jobs were created in the auto manufacturing business, to say nothing of selling and repairing cars, building roads and the entire petroleum industry. In a case like the car, there was far more demand for labor as a result of the innovation.

A new technology like the car is an innovation, which is a different class of new technology than some other developments. Innovative new technologies often create new industries and new positions, even as they destroy old ones. However, other new technologies are not as revolutionary. A less revolutionary new technology simply replaces an old one, but does not add anything to the economy. Such new technologies are simply incremental. An example of this might be the revolving door. This could have reduced demand for doormen, but it did not create new employment -- people still worked to make doors but no more than before.

3. There is a basic level of unemployment that occurs, even under equilibrium conditions. People transition between positions, for example, and they move. These people will find themselves unemployed, if only temporarily. There are other situations as well. A person might have family reason -- looking after a sick relative for example -- that takes them out of the workforce temporarily. Other people may face a situation where their skills are not in demand. This type of unemployment in structural in nature. While the economy overall might be in equilibrium, this does not mean that every industry and every state is. There may be barriers such location or qualifications that keep willing workers from finding jobs even at equilibrium. So there is both structural unemployment and voluntary unemployment. Structural unemployment should resolve itself over the long run. For example, people whose skills are obsolete would either retire or enter retraining. People who have no jobs in their area could move to another part of the country in order to fill a vacant position. However, there will always be people in transition, so that even in a robust economy there will still be a natural level of unemployment.

4. Marginal production refers to the increase in production for an increase in the number of workers. Generally, it is optimal to produce at the highest marginal rate, lest the company find itself affected by the law of diminishing returns. It is worth considering that the company needs to analyze what its marginal production is going to be for each worker level, so that it knows what it gets from having 20 workers than it does not get from having 19 workers.