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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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FYI: The Production Function
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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FYI: The Production Function
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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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).
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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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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.
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Factors tending to reduce productivity
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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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.
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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.