Role of Training and Development in Employment Opportunities - Term Paper Example

Impact of Diminishing Marginal Returns to Workers Table of Contents Introduction 3 2.Analysing the impact of diminishing marginal returns to workers on employment practices 3 3.Role of training and development in creating employment opportunities 8 4.Conclusion 9 Reference List 11 1. Introduction Law of diminishing marginal returns refers to the fact that if the new employees are included within the economy the marginal product of the new employee will be lower compared to the marginal product of the already existing employees (Sankar, et al., 2011). In a firm, the workers are required to produce output and hence if large number of workers is employed in the firm then higher output is produced and the level of work assigned to each worker diminishes (Black and Lynch, 2001). The work is distributed among the workers in order to make the work faster. However, the firms often prefer to use machines instead of human labour as they believe that the work can be done more efficiently as compared to the human labour. The researcher through this paper would aim to discuss about the concept of diminishing marginal returns to workers. This paper would offer the researcher a scope to discuss about the employment practices using the concepts of Economics. 2. Analysing the impact of diminishing marginal returns to workers on employment practices Law of diminishing return states that in case if equal quantities of one variable factor are increased, whereas, the other factor remains constant, there is a point in the economy beyond which if an extra unit of the variable factor added leads to diminishing return and fall in marginal physical product (Black and Lynch, 2001). The main reason behind this is that as one of the factors is held fixed and the other factor is increased, the proportions of the factors change. As the proportion of variable factor increases, the factor proportions become appropriate for carrying out the production within the economy and the marginal product increases. However, the researcher says that after a certain level, the production system becomes too much crowded with variable inputs and the factor proportions cannot be utilised for the production (Edvinsson, 2002). According to a researcher, an increase in proportions of the labour as well as the capital within the agricultural land for cultivation raises the output depending on the amount of input within the production process (Black and Lynch, 2001). However, in the agricultural process there are changes that may arise due to improvement in technology as well as the factor proportions. Technology within the agricultural field deals with the use of new and improved variety of crops for production and also the use of better quality fertilizers for proper cultivation. The law of diminishing returns is also referred to as the law of variable proportions within the economy (Lopez, Vaya and Artis, 2004). According to another researcher if the level of a productive service is increased and the other productive service level is held constant, the total product is expected to increase until a certain point and then it decreases within the economy (Lopez, Vaya and Artis, 2004). The level of output will also increase for a certain level at an increasing rate and then it is expected to increase at a decreasing rate and then the economy reaches a point where any further application of the variable factors would lead to a total decline in the production level in the economy. The average cost plays a key role in explaining the law of diminishing returns in the economy. In the short run, some of the factors are fixed in the economy whereas, some other factors are considered as variable (Harris, 2001). On the contrary, in the long run all the factors are considered as variables within the economy. The fixed costs of the capital are considered as very high whereas the variable costs of labour are considered as low and hence the researcher says that the costs increase slowly compared to the output levels in the economy (Harris, 2001). As long as the marginal cost of production is lower compared to the average cost of production, the average cost keeps on decreasing. Nonetheless, it has been concluded that as the marginal costs increases due to the law of diminishing returns, it is expected that the marginal cost keeps on increasing and as a result average cost also increases. Hence, for most of the firms the short run average cost curves is considered to be U-shaped (Harris, 2001). However, the long run average cost curves shows the cost per unit in the long-run when all the inputs are considered as variables inputs. The long run average cost curve is considered as U- shaped due to several factors. The long run average cost curves depict that the increasing returns to scale is positively sloped, the constant returns to scale is horizontal and the decreasing returns to scale is considered as negatively sloped. Figure 1: Diagram showing short run average and marginal cost curves (Source: Lopez, Vaya and Artis, 2004) It is stated that there are three stages of production and the firm decides the ideal level of production in the economy (Harris, 2001). The ideal level of production is that level where the economy where the firm earns the maximum profit in carrying out the production process. The total average and the marginal productivity can be divided into three regions in the economy and there is only one stage where the production decisions are considered as rational. Stage I can be defined as the stage whereas the proportion of variable input is increased the production level within the economy increases at an increasing rate till a certain level on the total product curve (Harris, 2001). Thus, the marginal product curve increases at first and then it is expected to decline. There is a point of inflexion on the total product curve where it changes its curvature. At first, the total product curve is convex to the origin and then it changes to concave curve. The stage I is considered till the point where the marginal product curve is equal to the average product curve in the economy (Harris, 2001). In this stage, the marginal product curve increases continuously and it remains above the average product curve. If the variable inputs are increased in a greater amount it increases the production efficiency within the firm (Blecker, 2003). So the decision would be irrational if the use of variable inputs is not increased further until there is no full utilisation of the fixed inputs. Hence, the stage is not considered suitable for production. In case of Stage II, there is a decreasing marginal productivity and the marginal product curve is lower than the average product curve (Blecker, 2003). The stage begins from a point where the average product curve reaches at its maximum level and the stage ends at a point where the total product curve is at is at the maximum level. It is this stage where the marginal productivity of the variable and fixed factors is considered to be positive. The stage is considered suitable for the optimum use of inputs within the firm. However, the optimum value can only be derived when the input and the output prices are known within the economy. Producing in this stage is considered to be rational. Both the average and the marginal productivities are decreases. The third stage is considered to be the stage where the marginal productivity becomes negative after a certain point (Hunt, 2000). It is not considered to be rational in further increasing the factor proportions in this stage which may further lower the total product in the economy. Thus, stage III is also not suitable for carrying out the product in the economy. However, the irrationality of the production levels in both Stages I and III is considered to be different in terms of the availability of the variable inputs (Blecker, 2003). There is scarcity of the variable inputs in stage I and there has been an excess use of the variable factors in stage III compared to the fixed factors of the production system. Due to the marginal productivity of variable factor being negative in the third stage of the production process, it is considered to be same for the fixed factors of production in the first stage (Blecker, 2003). Figure 2: Total Product curve showing various stages of production (Source: Hunt, 2000) However, there is a serious impact of the technological change on the production process within the economy. The physical as well as the value productivity within the farm has been changing due to the flow of technological innovation within the economy. The technological innovations are such that they reduce the workload of the farmers in the agricultural field and a large amount of the agricultural output is produced within the economy (Hayes, 2007). This refers to the fact that more total output can be produced from the inputs used in the production process. Nonetheless, due to the technological innovation large amount of agricultural output can be produced using fewer resources. There are different levels of technologies available to the farmers. For example, there are different production techniques used by the farmers to produce high yielding varieties of crops within the agricultural field (Blecker, 2003). They also use good quality fertilizers to produce improved varieties of crops that they can sell in the market at high prices. The farmers also plan to use cost reducing techniques that can help the farmers to produce better crops at low prices such that they can earn some profit in the market (Blecker, 2003). However, there arises a problem if the farmers are not experienced enough to use the new farming techniques and they have to be trained in order to carry out better agricultural practices. 3. Role of training and development in creating employment opportunities The technological progress takes place even in the industries and the workers are not skilled enough to make use of the new technologies. Mostly, the workers are found to migrate from the rural to the urban areas in search of the employment opportunities (Madsen, 2007). The firms in the urban areas prefer to hire those workers who are highly skilled and well trained to use the technologies in the production process. The managers often hire the workers and train them in order to make them accustomed to the new and improved technologies used by the firms to improve their production levels. By introducing new technologies within the firms, the managers would prefer to reduce the work load of individual labourers within the industry. There are efficient managers within the firms who use the cost-efficient techniques to bring in development within the firms and conduct training programs for the workers (Madsen, 2007). The trained workers are then allowed to handle various projects and hiring a large number of the workers reduces the marginal productivity of each worker but increases the total production levels in the economy (Fingleton, 2003). The firms by inventing new and improved techniques create new job opportunities in order to operate the techniques within the firms. The firms focus on hiring efficient managers who are capable of carrying out the training programmes and dedicated employees who are able to perform well even under pressure (Madsen, 2007). On training the employees for developing particular skills it can lead to overall development of the firm’s production process that would in turn contribute to a higher level output for the consumers. The firm can thus satisfy its customers by serving them with high quality outputs that are produced by the skilled workers (Madsen, 2007). 4. Conclusion The research has been conducted by the researcher to analyse the impact of diminishing returns on the marginal productivity of workers. As the law states that on hiring an extra labourer would reduce the marginal productivity of each existing worker but increases the total production level in the economy. The research also allows the researcher to study the shape of the total product curve as well as the three stages of production. The study helps to understand the stage chosen by the firm for optimum level of production and the reason behind the rationality in producing in that stage. The study shows that there are three stages of production and the firm prefers to produce in the second stage as both the average and the marginal product curve are considered to be diminishing at this stage. Further, the firms as well as the agricultural production use some improved techniques for increasing the level of output in the economy. The farmers as well as the workers have to be efficient enough to get accustomed to the new technologies used. The workers are trained by the efficient managers in order to be well versed with the new technologies and thus improve the level of productivity within the economy. Reference List Black, S. E. and Lynch, L. M., 2001. How to compete: the impact of workplace practices and information technology on productivity. Review of Economics and statistics, 83(3), pp. 434-445. Blecker, R. A., 2003. The diminishing returns to export-led growth. The Bridge to a Global Middle Class: Development, Trade, and International Finance, Boston: Kluwer. pp. 259-98. Edvinsson, L., 2002. The new knowledge economics. Business strategy review, 133, pp. 72-76. Fingleton, B., 2003. Externalities, economic geography, and spatial econometrics: conceptual and modeling developments. International Regional Science Review, 26(2), pp. 197-207. Harris, R. G., 2001. The knowledge‐based economy: intellectual origins and new economic perspectives. International Journal of Management Reviews, 3(1), pp. 21-40. Hayes, M. G., 2007. Keyness Z function, heterogeneous output and marginal productivity. Cambridge Journal of Economics, 31(5), pp. 741-753. Hunt, R. C., 2000. Labor productivity and agricultural development: Boserup revisited. Human Ecology, 28(2), pp. 251-277. Lopez‐Bazo, E., Vaya, E. and Artis, M., 2004. Regional Externalities And Growth: Evidence From European Regions. Journal of regional science, 44(1), pp. 43-73. Madsen, J. B., 2007. Are there diminishing returns to RandD? Economics Letters, 952, pp. 161-166. Sankar, W. N., Skaggs, D. L., Yazici, M., Johnston, C. E., Shah, S. A., Javidan, P. and Akbarnia, B. A., 2011. Lengthening of dual growing rods and the law of diminishing returns. Spine, 36(10), pp. 806-809. Read More