TOPIC: THE FACTORS OF PRODUCTION

• LEARNING OBJECTIVES: At the end of this topic, you should be able to:

• Define the term ‘factors of production’.

• Briefly describe the production process.

• Identify the four factors of production.

• State the characteristics of land.

• Briefly explain what is meant by the law of diminishing returns.

FACTORS OF PRODUCTION DEFINED:

• Factors of production are the resources used to produce goods and services.

Question:

Identify the resources used to make a cake.

PRODUCTION PROCESS:

• The production process involves the manufacturing and distribution of goods produced and the provision of services.

Question:Where is manufacturing done?How is distribution carried out?What type of services are provided to (1)

satisfy people’s wants and (2) aid production?

FACTORS OF PRODUCTION:

• There are basically four factors of production which are required for the production process to take place. They are:

• Land

• Labour

• Capital

• Enterprise or entrepreneurship

The nature of Land

• Land refers to all natural resources found in the sea and on land. The range of natural resources has some influence on the capability of the economy to produce different goods and services.

Land includes:

• Raw materials e.g. copper, timber and rubber

• Landscape e.g. mountains, valleys and hills

• Ports e.g. natural harbours

• Climatic conditions e.g. the seasons

• Geographical location e.g. continents or islands

CHARACTERISTICS OF LAND

1. Mostly immobile: Some land such as climatic conditions and landscape are immobile as they cannot be transferred from one place to another.

2. Limited in supply: Although land is limited in supply, some can be increased by man-made efforts. For example, land area can be increased by reclaiming land from the sea. Some examples of countries that reclaimed land from the sea include Singapore and the United Arab Emirates.

Characteristics of Land

3. Gift of nature: Climatic conditions, geographic locations, natural deep harbours and mineral deposits are all gifts of nature.

4. Land is subjected to the law of diminishing returns. This hypothesis states that if one factor of production is fixed in supply (i.e. land and / capital in the short run) and extra units of another factor (i.e. labour ) are added to it, then the extra output or returns gained from the employment of each extra unit of this factor must, after a time, go down or diminish

The law of diminishing returns

• This hypothesis states that if one factor of production is fixed in supply (i.e. land and / capital in the short run) and extra units of another factor (i.e. labour ) are added to it, then the extra output or returns gained from the employment of each extra unit of this factor must, after a time, go down or diminish

Lesson 2: The nature of Labour

LEARNING OBJECTIVES: At the end of this topic, you should be able to:

1. Define the term ‘labour’2. State the characteristics of labour.3. Describe the classification of labour4. Define the term ‘labour force’5. Identify and describe those factors which affect the

supply of labour6. Identify and describe those factors which affect the

productivity of labour

Labour:

• According to the British economist, Alfred Marshall (1842-1924), labour can be defined as any exertion that the mind or body has undergone, either partly or totally, with the view of earning some other good other than the pleasure derived from the work itself.

• Thus labour involves the physical and mental efforts of individuals as they convert the resources of nature into goods and services. It therefore would include all forms of work needed to transform natural resources into a form useful to man.

CHARACTERISTICS OF LABOUR:

• A labourer sells his services only.• Labour services cannot be separated from the worker.• Labour services cannot be kept or stored like goods.• Labour is provided by human beings. They are not

machines and must be treated with dignity and respect.• Labour has greater mobility than land as it is easy to

import labour from another country.• Labour is not a homogeneous product as each person is

unique and different people have different skills and attitudes.

QUESTION:

• Identify some skills required to cook a family meal, for example, the Sunday lunch.

• Is this labour as Alfred Marshall defined it?

CLASSIFICATION OF LABOUR

1. Unskilled - there is no special ability required to perform tasks, for example, men who carry buckets of cement on a construction site.

2. Semi-skilled -- the ability to do a particular task isonly partially developed. These workers need to get further training to be able to perform the task really well. An example would be practical nurses or nurses aides in a hospital. They have basic training but need further training to develop nursing skills.

3. Skilled - there is a special ability to do a particular job. These skills required may have been developed through specialised training following prescribed courses or developed on the job during employment.

THE SUPPLY OF LABOUR OR LABOUR FORCE

• The supply of labour in a country or the country's labour force refers to all those people who are either employed or seeking employment.

Factors which affect the supply of labour

The labour force of a country is affected by a number of factors, which may either cause the supply to increase or decrease. Among these factors are:

1. The size of the population: Populations that are large tend to have a greater supply of labour than populations that are small. The birth rate does affect the size of the population and hence the labour force.

2. The age distribution of the population: This can affect the labour force in that if the population is old, (the majority of the citizens are retired or near retirement) or if the majority of the population is young (that is of school age) then the labour force may be small.

Factors which affect the supply of labour

3. The compulsory school leaving age and retirement age; If young people leave school early for the working world this means that more labour is available to, the country. Also if retired persons are allowed to work this again contributes to an increase in the labour force.

4. Social habits: In some countries married women may not be allowed to work and this would reduce the supply of labour.

THE PRODUCTIVITY OF LABOUR

• The productivity of labour is affected by its efficiency. There are a number of factors that may affect the productivity of labour.

The productivity of labour

1. The level of education of the worker: This factor affects whether the worker can be trained further in a particular area or in a new area. 'On-the-job' training may assist in advancing the productivity of the worker.

2. The standard of health of the worker: Healthy individuals are far more efficient than sick ones. The adequacy and efficiency of the health services will also determine the extent to which sick persons are restored to health and assume their productive roles.

The productivity of labour

3. The attitude of people towards work: If persons are responsible and apply themselves to the task that they are engaged in then this would affect their productivity in a positive way.

4. Wages: Workers are motivated to perform by income, thus allowing them to improve their standard of living and their health. A system of paying workers called 'piece rate' is known to increase productivity.

Productivity of labour

5. The transportation system available to assist workers in getting to and from work: If the transportation system is efficient it means their workers will be able to get to work on time, less fatigued and result in an increase in their productivity.

6. The mobility of labour: If persons are willing move to new areas to find work or move into new occupations, then it is likely that their productive ability will be utilised.

Productivity of labour

7. The organisation of the workplace; Good organisation means that raw materials will available and machines will be in proper working order. This means also that careful instructions will be given so that there is no loss of time and waste of resources in the productive process.

8. Working conditions: The layout of the factory, the lighting and ventilation of offices are areas to examine. If workers have to leave the plant purchase lunches because there is no canteen facilities available this may prevent them returning to work on time or be stressed out on the job, hence reducing their efficiency.

Productivity of labour

9. Offering promotion opportunities to workers: This acts as a challenge to workers. Workers will be motivated to perform at their jobs.

10. Providing sufficient education and proper training opportunities: Provide opportunities for workers to upgrade themselves by attending courses either locally or overseas. On-the-Job training programmes can also enhance the productivity of workers.

Productivity of labour

11. Injecting new blood into the organisation: Young people are more receptive to new ideas and bring with them new thoughts and ideas that might benefit the organisation.

12. Ensuring good management: The good management of human resource development is vital in any organisation. For example, in Japan, the emphasis of workers' welfare has resulted in happier and more dedicated staff. This has helped increase, productivity.

Productivity of labour

13.Provision of social services by the government: Provision of social services such as medical, housing, transportation and educational facilities by the government will ensure that most people will be able to afford them. As the well-being of the labour force improves, productivity will increase.

QUESTIONS:

• Can your productivity be increased?

• Suggest some ways that this may be done.

Lesson 3:Mobilisation of Labour (Migration and the Labour Force)

1. Define the term ‘migration’

2. Identify and describe the types of migration

3. Identify the reasons for migration

4. Describe the effects of migration

5. State the obstacles to mobility of labour.

6. State the advantages and disadvantages of division of labour.

Migration defined:• MIGRATION is the permanent movement of

people from one area to another or from one country to another. A person leaving one country to reside permanently in another is called an emigrant and when he arrives in that country he is termed an immigrant. Today the term migrant is used to represent both.

Internal migration vs External migration

• When an individual leaves the rural areas to settle permanently in the city this is called in-migration or internal migration. If an individual leaves one country to reside in another country this is called out-migration or external migration.

EFFECT OF MIGRATION ON THE LABOUR FORCE:

• Migration affects the labour force in that it is one of those factors affecting population growth or decline in some countries. It is used to preserve the balance between the birth rate and the number of inhabitants that a country can support. If more persons leave a country than those coming in or being born, this will prevent this country from achieving maximum economic growth. Too few workers will halt development and industrial production.

Effects of migration

• On the other hand if a country has more inhabitants than it can support this will cause average output and standard of living to be low and there will be great demand for social amenities. Governments find themselves spending a great deal on public relief payments or food imports instead of harnessing this expenditure for industrial development.

Migration and the Caribbean

• Many Caribbean countries face the problems mentioned above. However, when many educated persons such as our professionals, lawyers, doctors, managers, teachers, nurses and other skilled persons leave, this results in the pace of industrialization and development in Caribbean countries slowing down. Many of these individuals have been trained in the Caribbean from meagre scarce resources. This "brain drain" as it is called, has a negative impact on the Caribbean.

REASONS FOR MIGRATION

1. To increase material wealth e.g.; better homes; and cars;

2. To increase living space;

3. To find better jobs and higher living standards;

4. To make use of better educational opportunities;

5. Health reasons;

6. To escape political and economic pressure.

EFFECTS OF MIGRATION

• There are negative as well as positive affects of migration - both on the country from which persons leave and on the one where they settle.

Effects of migration1. If the persons are skilled professionals then they will

add to the quality of the human resources of the country where they settle. On the other hand, they reduce 'the quality of the human resources of the country they leave.

2. If the population of the country where they leave is small this further adds to the reduction in labour necessary for development. On the other hand, if the population is large, then the government may find that less is spent on social programmes and the money saved in this way can be used towards development.

3. If the country where the migrant settles is over-populated, then there is going to be more spending on social welfare programmes and less spent on development.

Effects of migration4. The migrant may also find difficulty in getting

work in his new country because: • There may be sex, class or race

discrimination;• His/her educational qualifications may not be

recognized, hence further studies will have to be undertaken;

• There are language difficulties to contend with; or

• He/she suffers from lack of knowledge of the different systems in the new country.

MOBILITY OF LABOUR DEFINED:

• Mobility of labour refers to the movements of labour.

Question:

• Can you identify any person or persons who have moved from their home country to another for the purpose of employment?

Types of Mobility of labour

There are two types of mobility of labour: occupational mobility and geographical mobility,

• Occupational mobility of labour: This refers to the transfer of labour resource from one occupation to another, either horizontally or vertically.

• Horizontal mobility would involve a change of job involving a change of duties.

• Vertical mobility would involve a change of job involving a change in the level of responsibility.

Geographical mobility of labour

• This refers to movements of labour from one place to another, either locally, regionally, or crossing national boundaries.

OBSTACLES TO OCCUPATIONAL MOBILITY OF LABOUR:

1.Lack of necessary skills and qualifications: For example, to become a doctor, one needs to be professionally trained as one.

2.The age factor: Older workers are generally less mobile than younger workers.

3.Sentimental reasons: Having close ties with colleagues and supervisors might be a factor causing one to stay on in a job.

4. Insufficient information about job availability: Due to lack of information, availability of jobs in other fields is not known to job-seekers.

OBSTACLES OF OCCUPATIONAL MOBILITY 5. Unwillingness to take risks by changing job or

environment: The worker may be very familiar with his present job and does not want to move out of his comfort zone as he does not know what to expect in the new Job.

6. Entry requirements and restrictions for certain occupations: To be qualified for certain jobs, one would need to fulfil certain criteria. For example, to be a pilot, one needs to be of a minimum height and have good eyesight.

7. Contractual obligations: Being under a contract or bond would make changing Jobs difficult.

Obstacles to geographical mobility

1. Financial constraints: the cost of moving is a major factor which restricts geographical mobility.

2. Political instability: war, riots, or political upheavals in a country would discourage people from moving into a country.

3. Sense of belonging to one’s country: family and friends and a sense of belonging to one’s country (patriotism) would make people think twice about uprooting themselves.

ADVANTAGES OF DIVISION OF LABOUR:

1. Increase in output: The concept of division of labour was first introduced by Adam Smith who proved that with division of labour, output will increase.

2. Requirement of specialists: Because of the specific tasks involved, people with the necessary skills and knowledge are needed. Thus the company has to employ specialists so that operations for the production of goods and services can be carried out.

ADV. OF DIVISION OF LABOUR

3. Use of machinery: Some tasks can be performed more efficiently by machines. The division of labour makes possible the use of machinery to accelerate the production of goods. This will enhance productivity of labour.

4. Increase in productivity: Workers performing repetitive tasks will soon become experts. They know the tasks they perform well and are more efficient. Productivity thus increases.

ADV. OF DIVISION OF LABOUR5. Saving of time: With division of labour, more

time will be saved as workers do not have to move from one place to another to perform different operations. The saving of time, in turn, helps the company to become more cost-effective.

6. Diversification of employment: With specialisation, more job opportunities are created, each requiring different skills. For example, as firms mechanise and computerise, workers trained in these areas are required. This will create new employment opportunities.

DISADVANTAGES OF DIVISION OF LABOUR:

1. Doing repetitive work might be boring and monotonous: Due to the repetitive nature of the job, workers may find their jobs uninteresting and unchallenging. The workers may also feel alienated from one another as they work alone with minimal interaction with co-workers.

2. Lack of ownership: As the workers do not create a product from start to finish and only contribute a portion towards the production of the product, they do not feel a sense of ownership towards the product.

DISADV. OF DIVISION OF LABOUR

3. Retards creativity: Because of the repetitive nature of the job, there is little room for creativity and workers might become bored.

4. Causes immobility of labour: The workers, being specialists, are easily made immobile if they are retrenched or if their jobs are being made redundant because of technological advances. They will have difficulties in looking for other kinds of jobs because their specialised skills might not be relevant in other jobs.

LESSON 4: UNEMPLOYMENTLEARNING OBJECTIVES:

1. Define unemployment2. Identify and describe the types of unemployment3. Describe possibly ways to reduce these types of

unemployment4. Describe unemployment in the Caribbean5. Define underemployment6. Describe self-help and community work7. Identify some of the agencies that provide training for

self-help and community work8. Identify the types of training received by these

agencies.

UNEMPLOYMENT DEFINED:

• Unemployment is a situation where there are more people seeking jobs than there are jobs available.

TYPES OF UNEMPLOYMENT:• There are different types of unemployment

caused by different situations. The following are the main types of unemployment:

1. Cyclical2. Frictional3. Structural4. Technological5. Seasonal6. Casual7. Disguised8. Residual

CYCLICAL UNEMPLOYMENT:• Cyclical unemployment refers to the booms and slumps

that occur in the level of industrial activity which has occurred over the past centuries.

• In boom periods there is a general rise in demand for products thus causing industries to expand and employ more workers and this may happen over an extended period of time - several years. However, this general increase in demand does not continue forever and is usually followed by a general fall in demand for goods and services.

• This period is described as a 'slump'. When this occurs, industries react by laying-off workers. Note that this type of unemployment is due primarily to a general fall in demand for goods and services; that is, the majority of industries experience this fall in demand at the same time.

REDUCTION IN CYCLICAL UNEMPLOYMENT

• Some economists like Lord Beveridge feel that since cyclical unemployment was brought about by inadequate demand in the economy on a whole, then polices must be put in place to increase overall demand for goods and services.

• One suggestion to increase demand is to increase spending, both in the public and private sectors. The view is that if government spent more on social programmes and the like, this would provide income for persons who would create demand and thus cause more job expansion. The same would also be true of the private sector.

• It has been recognized 'that a low level of unemployment cannot be achieved simply by demand management. This is largely due to the fact that inflation follows a high level of demand. Therefore more attention must be paid to reducing unemployment by creating conditions which stimulate existing firms to expand and new firms to enter production.

FRICTIONAL UNEMPLOYMENT:• Frictional unemployment is the time lapse

between a person losing one job and gaining another.

• Unless the economy is completely static there will always be people changing their jobs. Some may desire a change of employment or a move to a different part of the country. In certain occupations, such as unskilled labour in the construction industry, workers are not employed regularly by any one employer, so when a particular contract is completed labour is made redundant.

REDUCTION IN FRICTIONAL UNEMPLOYMENT

• Since frictional unemployment is due to a time lapse between losing employment and gaining employment as a result of structural or technological changes, then a way to reduce this type of unemployment would be to create opportunities for people to move from one job to another.

• Occupational mobility is possible if workers can be retrained for jobs, for example, accounting clerks can be trained to operate computers. On-the-job training can be provided for workers prior to new technology being introduced by firms to reduce the level of friction.

STRUCTURAL UNEMPLOYMENT:

• Sometimes unemployment is caused by a fall in demand for a particular product. This may be due to a fall in the price of a substitute for this product, or for example, people may demand one product over another because it is heavily advertised, or because of a change in taste. This will lead to a shift in production.

REDUCTION IN STRUCTURAL EMPLOYMENT:

• Structural unemployment may be reduced to some extent if there is less localization of industries. If a number of different types of industries were located within the same general area then there would be greater mobility of workers reducing the level of structural unemployment.

• Additionally there is the question of good transportation, and cheaper housing as motivating factors for workers to either travel long distances to work or settle in new areas where jobs are available.

TECHNOLOGICAL UNEMPLOYMENT:

• Technological unemployment may be due to a firm using a new technique or the latest technology in its operation thus having to lay off workers in the process. For example, an accounting firm may opt to use computers in its operations and lay off a number of accounting clerks.

SEASONAL UNEMPLOYMENT:• The demand for some goods and services and the

availability or supply of others are seasonal in nature. For example, some agricultural products like sugar cane, apples and mangoes are available at certain times of the year, thus workers are required to harvest these, but during off-season periods they are temporarily unemployed.

• In some countries winter or bad weather may prevent roadwork and other out-door construction from taking place.

• In most Caribbean countries there is the tourist season when many are employed in hotels and guest houses across the islands as entertainers, cooks, housemaids, and so on, but are laid off during off-season periods.

REDUCTION IN SEASONAL UNEMPLOYMENT

• Seasonal unemployment is unavoidable but it can be reduced. One major way is by mixing or combining jobs, for example, a cane cutter may be used in a factory to do other jobs when cane cutting is over, or hotel workers may become store assistants during off season periods.

• The difficulty, however, is that It is not easy to make the switch from one area to another. For example, a farm worker cannot become a taxi driver if he does not have a certified driver's licence.

CASUAL UNEMPLOYMENT:

• This type of unemployment includes part-time workers and those who do not have steady jobs.

DISGUISED UNEMPLOYMENT

• This term is used to describe situations of reduced output where individuals are being paid but are not working. Unemployment is seen here as disguised.

RESIDUAL UNEMPLOYMENT:

• If the situation causing unemployment cannot fit into any of the categories described above then it is considered as residual. This category would include individuals who, because of being handicapped (mentally of physically), are not employable due to their perceived inefficiency.

• Additionally, there are those individuals who work only to satisfy a certain need or desire and choose not to work after that has been met.

UNEMPLOYMENT IN THE CARIBBEAN

• Apart from the types of unemployment mentioned above, there are other factors that contribute to the high levels of unemployment that exist in Caribbean countries.

Factors affecting unemployment in the Caribbean

1. A large section of the labour force is engaged in agriculture. Agriculture is very fragile, thus any factor reducing demand or supply of agricultural products can affect the level of unemployment, for example, drought, crop failures or worsening terms of trade.

2. High growth rate of the population leads to a large labour force and not enough jobs being created in the long run to deal with the demand.

Factors affecting unemployment in the Caribbean

3. Unemployment is further worsened by the unbalanced wage structure in the Caribbean where a few are employed and paid high salaries. Trade unions try to bridge this gap by seeking better salaries for those at the lower end of the scale. Some employers react to this by laying-off workers thereby aggravating an already bad situation,

4. The nature of our formal and informal education is of such, that youngsters feel that only some types of jobs are worthwhile. Hence, many prefer to remain unemployed than seek jobs that they consider below their status.

UNDEREMPLOYMENT DEFINED:

• Underemployment is a situation where either persons are working less than the normal work week and are seeking additional employment or are doing a job that is below their level of ability.

SELF-HELP AND COMMUNITY WORK

• Self-help and community work may be one response to reducing unemployment. Additionally, cottage and linkage industries could also reduce the level of unemployment.

• Self-help and community work are potent forces with respect to their economic contribution in assisting in reducing the levels of unemployment within Caribbean economies. There are many private and public agencies that are responsible for the training of persons within these economies. Later these individuals in turn are able to provide employment for themselves as well as spearhead employment for others in their communities. Some individuals form co-operatives or engage in cottage production.

AGENCIES THAT PROVIDE TRAINING FOR SELF-HELP AND COMMUNITY WORK:

• Social Development Commission

• Service Clubs

• Church Groups

• Citizens’ Associations

TYPES OF TRAINING PROVIDED IN THE CARIBBEAN THROUGH SELF-HELP AND COMMUNITY WORK:

• Dressmaking and Tailoring

• Catering

• Basketry

• Ceramic and Pottery making

• Floral decoration

• Welding

• Masonry and Block making

Lesson 5: Capital as a factor of production

• Learning objectives:

1. Define the term ‘capital’;

2. Identify and describe the two forms of capital;

3. Describe the nature and importance of capital goods.

Capital as a factor of production:

• Capital as a factor of production includes money used to acquired natural and human resources as well as all other assets which are employed in the process of production, such as the tools, equipment, buildings, and any improvement to existing structures or plant and machinery to be used to improve production.

Forms of capital as a factor

• Capital as a factor of production takes two basic forms:

1. Fixed capital and

2. Working capital.

Fixed capital:

• These include buildings, machinery and other equipment that are used repeatedly in the production process and the creation of wealth.

Working capital

• Working capital includes stocks of raw materials, cash, bank balances and other items needed for the day to day running of the business and which are constantly used up in this process.

Capital goods as the basis for production

• Capital goods or producer goods are defined as goods that are used to produce other goods.

• They include all machinery and tools which are used in the production process in the act of creating more goods.

The importance of capital goods• Firms need to have appropriate equipment

and technology to foster efficiency and productivity.

• Firms must keep pace with the changes in equipment and machinery and the techniques in their different fields of endeavour so as to increase productivity.

• Obsolete technology and backward techniques will not foster growth and development.

LESSON 6: ENTREPRENEURSHIP

LEARNING OBJECTIVES:

1. Define the term ‘entrepreneur’

2. Describe the nature of entrepreneurship

3. Describe the role of the entrepreneur.

Entrepreneurship defined:

• Entrepreneurship or organisation involves the co-ordinating of all the other factors of production in the quantities desirable in order to achieve production.

The Entrepreneur as a factor of production

• The entrepreneur is the person who starts the business and determines whether its succeeds or fails.

• Several institutions have been set up to assist with the development of entrepreneurial skills.

• These include UWI (St. Augustine, Mona and Cave Hill), Business Development Centre (formerly SBDC), etc. These institutions offer training courses to assist in acquiring business skills.

The nature of entrepreneurship

• Entrepreneurs are the owners of the business and their role is to take on the risks of business and make decisions so that production can take place efficiently ahead of demand.

The nature of entrepreneurship

• The entrepreneur is a risk-taker and a decision-maker.

• Successful decision-making results in profits but losses will accrue if poor decisions are made.

The role of the entrepreneur

Entrepreneurs must be willing to carry out the following activities in order to succeed:

• To raise capital either from savings or borrowing to invest in the business;

• To organise the different types of labour required;

• To make any change that are necessary in order for the business to grow and develop;

• To identify and clarify decisions related to the business.