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Discuss the link between labour productivity and ULC. What should the relationship between the wage rage (earnings per worker) and productivity be to keep ULC constant? What is the case for South Africa? What are the implications of this?
in Economics and Finance by Diamond (64,808 points)
recategorized by | 45 views

1 Answer

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$$ULC =\frac{labourCost}{Q} = \frac{wN}{Q}$$

But since

$$\frac{Q}{N} = labour Productivity, ULC = \frac{wages}{productivity}$$

To keep ULC constant, wages should only increase if labour productivity increases, and only
proportionally.
Case in South Africa: Wages tend to increase while labour productivity decreases or
remains the same, thus causing ULC to increase.
Implications: Any one correct answer
This has severe repercussions for the overall productivity of the economy, and increases the
costs facing firms. Also, it is a possible factor contributing to the high unemployment in the
country, since the high minimum wages (resulting in high ULC) are not matched by high
productivity, forcing employers to employ less people at higher costs and at the disadvantage
of efficiency in their organisation. In addition, it causes deterioration in international
competitiveness.
by Diamond (64,808 points)

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