Ileana Diana Remuş

REI 3rd year - Group 958

Assignment 4: Measures to increase labour productivity

Relationships

Control of inflation
Because inflation negatively impacts the purchasing power, employees won’t have incentives
and will not afford to buy more. This affects mainly employees with fixed and small wages,
thus they will not be productive. As the demand of goods and services declines due to the
rise in prices, the market suffers as the supply is greater than the demand.
From the opposite perspective, companies are favoured in regards to unemployment and
exports. Because the increase in price rises also the production costs, this translates into less
output so fewer workers needed. Also, exporting companies are benefiting as inflation
incentivise exporting activities.

Incentives and government capital investments

This is done by subventions and subsidies which have a positive impact on the ease of doing
business and labour productivity. Through these, governments create markets, they increase
competition, working incentives and also the education/training of people, leading to higher
productivity and efficiency. On the other hand, as a negative aspect there is the distortion of
the competition, as the stimulus is directed toward certain companies.
Increased investments in infrastructure allow companies to perform better and incentivise
expansion, thus more workers needed. Investments in healthcare systems favour both
employees and employers, as absenteeism due to sickness is reduced. In terms of financial
systems, government can stimulate investments and lending conditions. For example,
employees are favoured in case of labour movement as housing can be more affordable,
while employers benefit from migration of skilled labour force and banking opportunities.

Government incentives and funding of R&D

In the long run, investing and funding R&D increases productivity. Talking about companies,
new technologies will be used; they are more environmentally healthy which can result in tax
breaks from the government. Also, employees are favoured as physical work is being reduced
and they have more possibilities to professionally advance.
On the other hand, employees can also be negatively affected as jobs will disappear and
fewer workers will be needed, while companies will have to invest more in training programs
in regards to using the new technologies and career advancement for the staff.

Focus on managerial techniques

The quality of management is an important factor of labour productivity improvement.
Managerial techniques should be used as incentives for employees at all organizational levels
in order to have a productive mindset. For example, the feedback a manager provides is very
important for an employee’s perception. It should be done in a constructive way that
encourages the employee to do its job well or to correct its behaviour.
On the other hand, this implies costs with proper training for the management at all levels, in
order to have a motivating workforce.
Focus on employee training
Staff training implies the transfer of knowledge or skills of a job in order to perform an
activity in the right way. Lack of employee training is reflected in inefficiency; this is a main
role in order to sustain efficient performance of employees.
This can be considered as an investment and a requirement of the company to provide
abilities and adequate equipment as well as managerial support in order to increase labour
productivity. This also represents a benefit of employees as opportunity for growth and
development, after having a strong base upon which to build.

Minimize government intervention

There are several ways in which the government can influence labour productivity.
The minimum wage can influence employees as they are not incentivized to work harder as
they already struggle on a daily basis. This goes hand in hand with controlling inflation,
because it affects the purchasing power of people. Seeing this from another perspective,
people can be incentivised as they have the security of getting at least a certain wage.
Companies on the other side, benefit from a lower minimum wage as it decreases production
costs and it reduces wage discrimination, but it’s not a strong factor of motivation for its
workforce or a factor that induces international competitiveness.
In terms of legislation, competition is reduced between companies, but employees can be
more motivated and productive if they have better conditions imposed by regulations.
Taxation such as income tax can or not incentivize employees to work harder and to be more
focused on development. (For example: progressive taxation) On the other side, severe
intervention doesn’t stimulate productivity due to constraints that do not allow development.
For example, restrictions in hiring, firing, restricted number of hours, etc.

Reduce power of trade unions

Trade unions are negotiating with employers on the payment and working conditions of the
member of the union. As the members of the union will try to negotiate a higher salary, this
can imply that companies will lower their supply of jobs, thus a higher level of
unemployment. As the salary is being pushed up for the members of the union, the other part
of the staff (the non-members of the trade union) might feel demotivated and will be less
productive.
Another important aspect of trade unions is that employees have more job security as a
member of a union. This can represent a motivation factor for the workforce, thus increased
productivity.

Changes in the definition and structure of labour

As a nation’s labour force is determined by the population working and the population that is
prepared to offer their labour in exchange for wages, changes in the size and structure affect
the labour market equilibrium.
If the nation has quite an old workforce, their productivity is expected to decrease as they are
approaching retirement age even though they have experience in the field. Consequently, the
labour supply grows slower in comparison with the growth of the demand, putting pressure
on wages.
Another aspect is related to new technology replacing operations. On one hand, technological
progress is a significant factor contributing to economic growth of companies, as you can
produce more with the same amount of resources or producing the same amount with fewer
resources. We can talk here about labour-replacement or adopting technology-intensive. On
the other hand, technological changes affect positively skilled labour and negatively for
routine-based labour.

Mitigating regulation on health, labour and pollution

Regulation on these topics basically constrain companies, while providing benefits for the
workforce. As a company, increased regulations translate into increased costs. As an
employee, more regulations translate into security and better working conditions.
This topic can be tackled in many ways. As a company, regulations can be seen as a cost,
affecting the workforce and not motivate them enough in order to be productive, or it can be
seen as a means to stimulate the staff into being more productive.

Difference between regions

Inflation is important for the three regions as they are huge markets in the global trade. The
USD is the world’s reserve currency, the JPY is a strong currency and Europe one of the
biggest markets.
For USA, incentives and government capital investments occupy the first place in
measures to increase labour productivity. USA is a mixed economy in which the state
significantly intervenes and invest in companies. In EU, there is also severe intervention and
investment for example in the agriculture, while in Japan this is a common practice.
In terms of R&D, USA is a leader with a sustained advance. Europe is investing in R&D in
order to boost its international competitiveness and technical expertise. Japan and Europe
both invest in R&D in order to design new concepts and technologies rather than focusing on
developing the existing one.
USA and Japan are more focused on managerial techniques in comparison to Europe. In
USA, managerial techniques are important, as they are more individualistic and they value
hard work in order to advance professionally. In Japan, management is applied in a special
form with different methods. In Europe, because the region is heterogenous, there is little
focus on managerial techniques.
Japan is more focused on employees training as they are more collectivistic and they have a
bottom-up decision-making process. Their staff has to be trained and skilled. Their cultural
foundation is based on seniority and long-term orientation (“job for life”), so training is an
important factor in this aspect.
In comparison to USA and Europe, Japan low-ranked minimizing government intervention.
The direct state involvement in economic activities is limited in Japan and it’s conducted
through consultations with businesses. Hence, this is not a main focus for Japan in order to
increase productivity.
Trade unions are present in the first 3 rankings in Europe, as generally in this region the
organized labour through these unions have legal and institutional influence over the labour
market. These unions are fighting not only for better payment and working conditions, but
also for development of welfare. The unions are class-based, so unions are related to policy
making benefiting general employees. In Japan, much of the labour force is not organized;
unions are formed within limits of companies; there is no wage differential in regards to
membership in unions; they are in charge with strategies. In the US the unions are rather
organized and formed within limits of industries; there is a hostile attitude towards unions
and they are still oriented to exclude labour representatives.
Changes in the definition and structure of the workforce ranked higher for Japan, in
comparison with Europe and USA. This is mainly due to several influences in the Japan
labour market. Due to the decreased rate of fertility, the population is shrinking and there is a
large portion of the workforce that is close to retirement (baby boomers). As their
employment culture is based on recruiting new graduates and seniority and there is a shortage
of labour, the Japanese government should consider changes in structuring the workforce. As
workers in Japan are rising in regards to educational level and post-war generation will
replace the generations born before the WWII, workers’ attitudes might change. This is also
linked with the today’s technological advance, as workers have to adapt more and more with
the new technology.
In terms of mitigating regulations on health, labour and pollution, USA has extensive
regulation. It ranks one level higher in comparison to the other two regions in respect to their
healthcare system. Europe and Japan stand on the same level. Japanese culture is more
focused on the environment and health of labour force, while in Europe the accent is on the
profits.