Productivity issue

Question

Could someone help with the following?

Company produces products of daily demand. It employs workers In number of 12 people (HER) Wages of workers. The costs of hiring and firing are 25 per employee, the duration of the working day (h) the Company plans to make organizational modernization (increase the size of service areas, the number of functions performed by each employee and n) and improve the efficiency of production, reducing the number of employees from 12 hours to 10 people. At the same time, it plans to reduce the number of employees to produce the same volume of production at the same cost level. Will this organizational modernization lead to an increase in labor productivity at the enterprise? How should the duration of the working day at the enterprise change as a result of productivity growth from this organizational modernization?

Answer 1

We will donate production as y (output), labor as l (workers), and wages as w (compensation). In your example l (labor) is reduced from 12 to 10 which is a sign that productivity is improving because you say that y (output) remains constant. What can we expect? Well (n) decreases and output remains the same, profit increases (profit = (MPL * Price) - w). So the marginal product of labor increases, output stays constant, but wages remain constant in your example. This means that each worker is marginally more productive due to fewer workers (l) producing the same level out output (y), which increases profit. The modernization will be called technology and we can denote it as (k) for capital. The workday should also remain constant because the hours worked is offset by fewer workers (there is missing information in this question so this may not be precise). MPK (the marginal product of capital) is unknown in this problem however, which means the revenue from changes in capital, and the profit as a result of capital is unknown because we don’t know what r (the cost of capital, rent paid for machines) is. So it’s an incomplete question it appears.

In short, based on what you did ask, labor productivity per worker should increase, and work day duration should remain the same because the tech increase appears to be offset by fewer workers, which is why aggregate production (y fixed) remains the same, so we can expect hours to remain the same per worker, although aggregate hours worked fall.