ECS2604 ASSIGNMENT 2:
SEMESTER 1 & 2: 2021 SOLUTIONS
COMPILED BY RANGA: 0618441387
QUESTION 1
Why is productivity improvement important? (10)
Traditionally, productivity has been defined as the relationship between real output
(i.e. the quantity of goods and services produced) and the quantity of input used to
produce that output (Smith, 2003).
Productivity = quantity of output/units of production e.g. quantity of input/units of
capital or labour or both
An increase in productivity, and especially labour productivity, is important for the
following reasons:
• The productivity of human resources determines their wages, while the productivity
of capital determines the return of its holders. High productivity not only supports
high levels of income but also allows citizens the option of choosing more leisure
instead of longer working hours; it also creates the national income that is taxed
to pay for public services, which in turn boost standards of living. The capacity to
be highly productive also allows a nation’s firms to meet stringent social standards,
which improve standards such as health and safety, equal opportunity and
environmental impact.
• An improvement in productivity is important to attain a higher economic growth
rate. Productivity improvements, rather than low wage levels, should pro- vide
countries with an international competitive advantage. However, as indicated
below, the improvement in productivity in the past made a relatively small
, contribution to economic growth in South Africa. In contrast, for many of South
Africa’s major competitors, productivity improvements were responsible for a
noticeably higher share in their economic growth rates.
• • Productivity growth is an anti-inflationary force in that it tends to offset or absorb
increases in money wages. In this respect it can help to restrain increases in unit
labour costs and, in so doing, help to maintain a country’s international
competitiveness. South Africa does not do well on this score when compared to
other countries.
• • It is the basic source of improvements in real wages and thus living standards
With regard to the economy as a whole and in the long term, real income per
worker can increase only at the same rate as real out- put per worker. If income
increases more rapidly than real output, the resulting inflation will reduce the
changes in real income to levels consistent with the out put improvements. In the
same way income redistribution cannot increase the income of some workers at
the expense of others as this will at most have only a short- or medium-term
influence on the living standards of the workers of a coun- try as a whole.
Productivity is therefore the real link between output and reward in production. An
increase in the produc- tivity of individuals over the longer term therefore enables
these individuals to consume more.
• Productivity improvements, rather than low wage levels, should provide countries
with an international competitive advantage. Thus, the increase in productivity
implies the improvement of competitiveness, but Buckley et al. (1988) points out
that productivity is one of the elements of competitiveness. The productivity
parameter serves as the equivalent for competitiveness and can be applied at
the country, sector, and company level.
•
Question 2
Discuss the main cause of unemployment in South Africa. (10)
The high unemployment that is prevalent in South Africa can be ascribed to factors
on both the supply side of labour, as well as the demand for labour.
An influx of unskilled, illegal immigrant labour who are prepared to work for low salaries
and as such are employed above our own nationals which impacts negatively on
unemployment (Barker, 2007)
SEMESTER 1 & 2: 2021 SOLUTIONS
COMPILED BY RANGA: 0618441387
QUESTION 1
Why is productivity improvement important? (10)
Traditionally, productivity has been defined as the relationship between real output
(i.e. the quantity of goods and services produced) and the quantity of input used to
produce that output (Smith, 2003).
Productivity = quantity of output/units of production e.g. quantity of input/units of
capital or labour or both
An increase in productivity, and especially labour productivity, is important for the
following reasons:
• The productivity of human resources determines their wages, while the productivity
of capital determines the return of its holders. High productivity not only supports
high levels of income but also allows citizens the option of choosing more leisure
instead of longer working hours; it also creates the national income that is taxed
to pay for public services, which in turn boost standards of living. The capacity to
be highly productive also allows a nation’s firms to meet stringent social standards,
which improve standards such as health and safety, equal opportunity and
environmental impact.
• An improvement in productivity is important to attain a higher economic growth
rate. Productivity improvements, rather than low wage levels, should pro- vide
countries with an international competitive advantage. However, as indicated
below, the improvement in productivity in the past made a relatively small
, contribution to economic growth in South Africa. In contrast, for many of South
Africa’s major competitors, productivity improvements were responsible for a
noticeably higher share in their economic growth rates.
• • Productivity growth is an anti-inflationary force in that it tends to offset or absorb
increases in money wages. In this respect it can help to restrain increases in unit
labour costs and, in so doing, help to maintain a country’s international
competitiveness. South Africa does not do well on this score when compared to
other countries.
• • It is the basic source of improvements in real wages and thus living standards
With regard to the economy as a whole and in the long term, real income per
worker can increase only at the same rate as real out- put per worker. If income
increases more rapidly than real output, the resulting inflation will reduce the
changes in real income to levels consistent with the out put improvements. In the
same way income redistribution cannot increase the income of some workers at
the expense of others as this will at most have only a short- or medium-term
influence on the living standards of the workers of a coun- try as a whole.
Productivity is therefore the real link between output and reward in production. An
increase in the produc- tivity of individuals over the longer term therefore enables
these individuals to consume more.
• Productivity improvements, rather than low wage levels, should provide countries
with an international competitive advantage. Thus, the increase in productivity
implies the improvement of competitiveness, but Buckley et al. (1988) points out
that productivity is one of the elements of competitiveness. The productivity
parameter serves as the equivalent for competitiveness and can be applied at
the country, sector, and company level.
•
Question 2
Discuss the main cause of unemployment in South Africa. (10)
The high unemployment that is prevalent in South Africa can be ascribed to factors
on both the supply side of labour, as well as the demand for labour.
An influx of unskilled, illegal immigrant labour who are prepared to work for low salaries
and as such are employed above our own nationals which impacts negatively on
unemployment (Barker, 2007)
