ECS2604 Assignment 2
QUESTION 1
Why is productivity improvement important?
Productivity is defined as the relationship between real output, that is, the quantity of goods
and services produced, and the quantity of input used to produce that output. It is a measure of
input efficiency, which can be expressed in terms of a ratio as:
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑜𝑢𝑡𝑝𝑢𝑡�𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑖𝑛𝑝𝑢𝑡�
There are three main forms of productivity, namely, Labour productivity, Capital productivity
and Multifactor productivity which is also called total factor productivity (TFP). 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 boosts
standards of living. The capacity to be highly productive also allows a nation’s companies to
meet stringent social standards, which improve standards such as health and safety, equal
opportunity and environmental impact.
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 output 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 output
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 country as a whole. Productivity is therefore the real
link between output and reward in production. An increase in the productivity of individuals
over the longer term therefore enables these individuals to consume more.
An improvement in productivity is important to attain a higher economic growth rate.
Productivity improvements, rather than low wage levels, should provide countries with an
international competitive advantage.
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, 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 (see section
QUESTION 2
Discuss the main cause of unemployment in South Africa
An unemployed person is a person who is without work, is currently available for work, and is
seeking work or wanting to work. Two definitions are generally used to derive statistics on
unemployment, namely the official, narrow (strict) and the broad (expanded) definition.
The high unemployment that is prevalent in South Africa can be ascribed to factors on both the
side of the supply of labour and the demand for labour. On the supply of labour, South Africa’s
major problem can be said to be that of structural unemployment. Structural unemployment
refers to a mismatch between the jobs available and the skill levels of the unemployed. Unlike
cyclical unemployment, it’s caused by forces other than the business cycle.1 It occurs when an
underlying shift in the economy makes it difficult for some people to find jobs. It is harder to
correct than other types of unemployment. Structural unemployment can keep the
unemployment rate high long after a recession is over. If ignored by policymakers, it creates a
higher natural unemployment rate.
The major cause of structural unemployment in South Africa has been technological advances
in some industries. This has happened in manufacturing as well as in the banking sector. .
Automated machines have been replacing workers especially in the banking sector and these
people cannot keep working in the same industry.
A second cause has been on the demand side of labour with the advent of COVID19. A lot of
firms faced the challenge of keeping their doors open, which eventually led to retrenchments
and dismissal of employees.
QUESTION 3
Explain with the aid of a graph the derivation of the short and long-run Phillips curves
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https://www.coursehero.com/file/103285850/ECS2604-Assignment-2pdf/
QUESTION 1
Why is productivity improvement important?
Productivity is defined as the relationship between real output, that is, the quantity of goods
and services produced, and the quantity of input used to produce that output. It is a measure of
input efficiency, which can be expressed in terms of a ratio as:
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑜𝑢𝑡𝑝𝑢𝑡�𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑖𝑛𝑝𝑢𝑡�
There are three main forms of productivity, namely, Labour productivity, Capital productivity
and Multifactor productivity which is also called total factor productivity (TFP). 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 boosts
standards of living. The capacity to be highly productive also allows a nation’s companies to
meet stringent social standards, which improve standards such as health and safety, equal
opportunity and environmental impact.
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 output 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 output
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 country as a whole. Productivity is therefore the real
link between output and reward in production. An increase in the productivity of individuals
over the longer term therefore enables these individuals to consume more.
An improvement in productivity is important to attain a higher economic growth rate.
Productivity improvements, rather than low wage levels, should provide countries with an
international competitive advantage.
This study source was downloaded by 100000853391718 from CourseHero.com on 09-27-2022 06:26:48 GMT -05:00
https://www.coursehero.com/file/103285850/ECS2604-Assignment-2pdf/
, 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 (see section
QUESTION 2
Discuss the main cause of unemployment in South Africa
An unemployed person is a person who is without work, is currently available for work, and is
seeking work or wanting to work. Two definitions are generally used to derive statistics on
unemployment, namely the official, narrow (strict) and the broad (expanded) definition.
The high unemployment that is prevalent in South Africa can be ascribed to factors on both the
side of the supply of labour and the demand for labour. On the supply of labour, South Africa’s
major problem can be said to be that of structural unemployment. Structural unemployment
refers to a mismatch between the jobs available and the skill levels of the unemployed. Unlike
cyclical unemployment, it’s caused by forces other than the business cycle.1 It occurs when an
underlying shift in the economy makes it difficult for some people to find jobs. It is harder to
correct than other types of unemployment. Structural unemployment can keep the
unemployment rate high long after a recession is over. If ignored by policymakers, it creates a
higher natural unemployment rate.
The major cause of structural unemployment in South Africa has been technological advances
in some industries. This has happened in manufacturing as well as in the banking sector. .
Automated machines have been replacing workers especially in the banking sector and these
people cannot keep working in the same industry.
A second cause has been on the demand side of labour with the advent of COVID19. A lot of
firms faced the challenge of keeping their doors open, which eventually led to retrenchments
and dismissal of employees.
QUESTION 3
Explain with the aid of a graph the derivation of the short and long-run Phillips curves
This study source was downloaded by 100000853391718 from CourseHero.com on 09-27-2022 06:26:48 GMT -05:00
https://www.coursehero.com/file/103285850/ECS2604-Assignment-2pdf/
