ECON1010 Introductory Microeconomics and Management

Explain how labour productivity is determined. In your answer address why human capital is considered to be so vital to lifting labour productivity levels. To illustrate your understanding provide an example. Your answer should be between ½ page and a full page.

 

When Hans Rosling talks about China ‘catching up’ with the United States, explain in more detail what he means by this? Your answer should be around ¼ of a page.

 

How can free trade help middle income countries or emerging economies ‘catch up’ with the high income or developed economies? Your answer should be ½ a page and include a relevant example.

 

On the y-axis of the visualisation Hans Rosling presents in the Gapminder video, income per person is shown. What is an alternative label or term that we have used in the course that means the same as income per person?

 

The income per person referred to in part c. above is ‘inflation adjusted’. Why is it necessary to adjust this for inflation? Your answer a should be no longer that ¼ of a page

The report identifies one the forces shaping the future as automation. Discuss how automation may impact unemployment in years to come. In your discussion be sure to identify the type(s) of unemployment it may lead to and comment on what policy makers can do to address this. Your answer should be around ½ a page.

 

Globalisation is a dominant economic force that creates new opportunities but also presents some challenges. Provide an example from Australia of an industry or sector of the economy that has suffered job losses as a result of globalisation. In your answer explain why globalisation can create unemployment in some industries or sectors of a national economy.  Your answer should be around ½ a page.

 

Comment on something you have found interesting from reading the Report (that differs from your answers in parts a and b). Your answer should be in one long or two shorter paragraphs.

Consider a closed economy in which GDP equals $20 billion, consumption equals $13 billion, government purchases equal $3 billon and tax revenue equals $1 billion. Use this information to answer the following questions:

What is private savings equal to in this economy?

What is public savings equal to in this economy?

How would the level of public savings impact the supply of loanable funds?

What is national saving equal to in this economy?

What are net exports equal to in this economy?

What is investment equal to in this economy?

By and large, labour productivity is a measure of the economic growth within a country. Mainly, it measures the quantity of services and goods that are produced by labour within an hour.  It is determined by dividing the total output produced by the number of workers. Today, human capital is considered to be a vital component in raising the level of labour productivity within a firm. Mainly, this is because firms employ a combination of labour and capital (both physical and human capital) to produce their goods and services. Mainly, labour comprises of workers who produce and manage the production process. On the other hand, capital represents the physical machines and equipments used in the production process. Likewise, human capital refers to the ideas and intellect employed by entrepreneurs in the production process. During the production process, therefore, labour utilizes capital to manufacture the end product. To raise their level of productivity, each worker must have the capability of producing more output. However, in order to achieve labour productivity growth, the firm must increase the capital that is utilized in the production process. In this case, both physical and human capital must be increased.

Example

Suppose McDonalds has one head chefs who can prepare 10 beef burgers every hour. One day, the management decides to take the chef to a burger cooking class to learn how to make the snack faster. After the course, the chef could prepare 20 beef burgers per hour. Therefore, one can note that attending the training helped the chef increase his human capital and thus, his labour productivity grew.

In the 1800s China was colonised and dominated by foreign powers. As a result, its economy was declining. The health of the economy was also declining significantly. In the meantime, the United States was independent and its economy was growing substantially. Its health was also increasing and the economy was experiencing substantial growth. However, after 1950, China gained its independence. As a result, its health began to grow, the level of education improved. Consequently, this provided a platform for growth of the economy, which started improving substantially to the level of the United States’. Today, China has caught up with the US in terms of education and economic performance.

Free trade can help emerging economies to catch up with the developed economies in various ways. Primarily, it creates an opportunity for low income countries to sell their goods and services freely to member countries, thereby raising their returns from imports. In turn, it boosts their level of growth. In addition, free trade creates an opportunity for the free movement of labour, which then improves labour productivity among member countries, thereby raising the GDP of member countries. An increase in GDP of developing nations is a step forward towards catching up with high income economies of the world. What is more, free trade leads to the promotion of innovation and technological advancements between countries which can then be shared among countries (Vitez, n.d.). Consequently, increased utilization of technology in production helps in raising the level of productivity, and hence economic growth in developing countries. Consequently, this brings about the reduction in the gap between emerging economies and high income countries.

Per capita income or GDP per capita

Mainly, the per capita income is inflation adjusted to ensure a perfect comparison of the statistic over the ears. More precisely, the economy of a country is subject to inflationary pressures over given periods of time. For this reason, wages of workers are also increased to cater for inflation in the cost of living. In turn, this raises the level of per capita income without necessarily implying an improvement in the GDP per capita. Hence, it is necessary to adjust the same for inflation to ensure that the level of per capita between two distinct periods is comparable.

Having read the Report answer the following questions:

It is imperative to note that job automation will result in an unemployment crisis throughout the world. Mainly, this is because machines and technological advancements will replace human workers, thereby reducing the number of individuals who are required to do certain tasks. Therefore, over the long term, the level of unemployment would be chronic (McAfee, 2012). Predominantly, job automation would result in various forms of joblessness among them structural and frictional unemployment. Mainly, structural joblessness would arise due to a mismatch in the skills that employers would be seeking and that which current workers possess (Pettinger, 2013). More precisely, the advances in technology and the subsequent changes in the labour market conditions would turn the skills of many employees obsolete. For this reason, their skills would not match the needs of the market, therefore rendering them jobless. In the same way, frictional unemployment would arise due to the transitions by the employers from human workers to automated machine processes. By replacing workers with machines, firms will be rendering their workers frictionally unemployed until the time they would be able to secure other forms of employment (Ford, 2011). In order to reduce the possibilities of increased joblessness, the government should provide training to its labour force and equip them with the necessary skills as demanded by employers. In addition, the government may invest in sectors and industries that are labour intensive to ensure that a large portion of its labour force is absorbed in the job market without the fear of being replaced by automation.

In Australia, globalization has negatively affected the car industry. Today, the industry is going through an untimely death following the adverse effects of free trade. Primarily, international trade has led to the influx of cheap motor vehicles into the country. Given that the wage costs in the country are high, the price of Australian manufactured cars is also relatively expensive. As a result, the market for Australian cars has dropped both in the local and international market. For this reason, local car manufacturers have been forced to close down their operations in the country (Dowling, 2015). Subsequently, this implies that many people who worked in the industry would lose their jobs. In turn, this will result in an increase in the rate of unemployment in the country over the short term and long term period. By and large, it is worth noting that globalization may also affect other sectors of the economy, leading to further increase in the level of unemployment. Particularly, the continued increases in the volume of trade between Australia and other nations imply that cheap products from other nations would be imported into the country. Consumers would then substitute the expensive local goods with cheaper imports. Eventually, low sales would lead to the closing down of local firms, leading to unemployment.

Apart from the automation of jobs and globalization, the aspect of collaboration also sparked great interest. According to the report, the future of the workforce will be characterised by an increase in the number of individuals taking part in flexible work with a range of employers in order to generate income (FYA, 2015). Thus, this concept presents an opportunity for the younger generation workers to obtain meaningful employment amidst a regime of increasing unemployment in the country. It presents a light at the end of the tunnel and hope for the future generation. Predominantly, it presents prospects for wider markets to access jobs as well as more flexibility in the means to obtain income. Furthermore, it opens up and lowers the barriers to entrepreneurship for the youth in the country. Therefore, although the future of the labour force is characterised by significant challenges for the young people, there is hope.

Reference List

Dowling, J. (2015). The Who killed the car industry? [Online] Chron. Available at https://www.smh.com.au/business/the-economy/who-killed-the-car-industry-20151112-gkx1c8.html [Accessed 1 Sept 2017].

Ford, M. (2011). Job Automation: Is a Future Unemployment Crisis Looming?. [Online] Huffington Post. Available at https://www.huffingtonpost.com/martin-ford/job-automation-is-a-futur_b_832146.html [Accessed 1 Sept 2017].

Foundation for Young Australians (2015). The new work order: ensuring young Australians have skills and experience for the jobs of the future, not the past. [Online] Foundation for Young Australians. Available at file://ntapprdfs01n02.rmit.internal/eh2/E10092/https---www.fya.org.au-wp-content-uploads-2015-08-fya-future-of-work-report-final-lr.pdf [Accessed 1 Sept 2017].

McAfee, A. (2012). Technological unemployment. [Online] Forbes. Available at https://www.forbes.com/[Accessed 1 Sept 2017].

Pettinger, T. (2017). Technological unemployment. [Online] Economics help. Available at https://www.economicshelp.org/blog/glossary/technological-unemployment/.[Accessed 1 Sept 2017].

Vitez, O. (2011). The Benefits of Free Trade for Developing Countries [Online] Chron. Available at https://smallbusiness.chron.com/benefits-trade-developing-countries-3834.html [Accessed 1 Sept 2017].