Labor returns

Marginal productivity is that labor may be subject to increasing returns in the short run not diminishing returns as management assumes. According to the law of diminishing returns as a firm expands employment the marginal product of labor should decline as the fixed stock of capital is spread over more workers. It is precisely impossible to gauge labor productivity (output per hour). It is almost impossible just like the fingers in the hand they are not uniform however they all function together. Thus the output actually varies directly with the level of employment in the firm - when employment rises on a business-cycle upswing output rises more than proportionately.

Since labor productivity is nothing but the average product of labor, economists have reasoned that if the average product rises with increased employment this suggests that the marginal product of labor also increases implying that the marginal revenue product is actually upward. However we know the management do not believe the prevailing thoughts.

Management will always argue on the increasing returns that this it is a statistical illusion caused by faulty data on the level of production. One wonders whether it is true that management wants the labor to produce more for less. During a recession for example firms may have blue collar employees work on deferred maintenance projects or the completion of unfinished assemblies. Since these activities are not counted as part of output their omission causes measured labor productivity to vary regularly in apparent conflict with the predictions of marginal productivity.

In addition management does not believe blue collar workers put in a constant level of effort however they believe that effort is likely to slacken in bad times and increase in good times. We also remember the former CEO Jay H Walder who argued that he will not ‘hoard’ blue collar employees during recession. He was not a fair CEO while he hoarded the white collar by consciously keeping more white collars than are really needed given the current level of production - we wonder why.