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Labor Productivity and Efficiency in Southeast Missouri Counties

Labor Productivity and Efficiency in Southeast Missouri Counties. Labor productivity=output/labor=Y/L. Determinants of Labor productivity Efficiency=actual outputs / maximum potential outputs Scale economies or diseconomies a. Economies of scale (increasing returns to scale)

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Labor Productivity and Efficiency in Southeast Missouri Counties

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  1. Labor Productivity and Efficiency in Southeast Missouri Counties

  2. Labor productivity=output/labor=Y/L

  3. Determinants of Labor productivity • Efficiency=actual outputs / maximum potential outputs • Scale economies or diseconomies • a. Economies of scale (increasing returns to scale) • “Bigger is better.” • Specialization, division of labor • b. Diseconomies of scale (decreasing returns to scale) • “Small is beautiful.” • Bureaucracy in large organizations. • c. Constant returns to scale-no size advantages or • disadvantages. • Amount of capital per worker. • Competition, taxes, regulation, education, unions, etc.

  4. A Simple Model of Production Counties use Labor (L) and Capital (K) to produce Income (Y) The returns to Labor and Capital account for approximately 98%+ of national income Capital is measured as the assessed valuation of real property in each county Labor equals the number of workers

  5. The Importance of Education to Scale Economies • Simple Production Process-Traditional Agriculture • The stages (n): 1. Till and Plant, 2. Weed and irrigate, 3. Harvest • Suppose probability of failure (f) in any stage is 5%. Success (s) is 95% • Then, probability of completing (C) all stages is: C = sn = 0.953 = 85.7%

  6. A manufacturing process with specialized labor and many stages • A manufacturing process with n=15 stages • If probability of failure stays at f=5%, then probability of completion is C=0.9515=46.3% • To keep the probability of completion at C=85.7%, probability of failure has to fall to f=1.02%. That is, C=0.989815=85.7% • Need more educated workers to help reduce probability of failure.

  7. Scale Returns by Southeast Missouri County

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