'Output per Worker' as the Opportunity cost of Unemployment: Rough notes

ALP (Average Labour Productivity) or OPW (Output Per Worker) as an Opportunity cost of Unemployment to society

It is very much plausible to look at Output Per Worker (OPW) or Average Labour Productivity (ALP) as a measure of Opportunity Cost of Unemployment to society. Unemployment theories and the theory of natural rate of unemployment [probably the Classical theory of Labour markets], talk about Unemployment and its related costs (in long-run & very long-run). So does the Keynesian theory of Output determination (in short-run).

Opportunity Cost means:

The cost of the next best alternative forgone is the Opportunity cost of the chosen alternative.

In Microeconomic theory, Consumer Behaviour theories like indifference preference theory, revealed preference theory; Production theories like Optimization behaviour of firms regarding their output under various market structures, etc.; Cost theories like Optimization behaviour by firms regarding their costs, etc. utilize this concept extensively.

In Macroeconomic theory too, Opportunity cost concept is utilized in various theories- for e.g. the Aggregate Labour Supply theory uses it in deriving the Aggregate Labour Supply curve from Individual labour supply curves. This is done by the means of the Microeconomic theory of Leisure-Income trade-off. Many other applications of this concept exist in Macroeconomics such as Production Possibilities frontiers, etc.

A simple model for Output Per Worker:

If the Production function is:
Y = A*f[K, N]
then OPW = Y/N.

This is but per labourer output in the economy.

OPW as such a measure:

OPW as above [at macroeconomic level] can be thought of as one such cost that the society has to forgo on account of there being people who cannot find work/do not want to work. Were they employed, we would have gained at least that much amount of output per labourer as produced by the current labour force of an economy [country]

Some Assumptions required here are:

Indeed, many qualifications arise here as below:

1. We need to assume that the Production function [Y = A*f(K, N)] remains the same even if the currently unemployed labourers become employed. It means even if N increases on account of increased labour force, Y changes in such a manner so as to keep ALP constant as before the unemployed became employed.
2. Technological parameter [A] remains constant. 
3. Production function continues to exhibit the same returns to scale as it did before the unemployed become employed. Probably a restatement of Assumption 1.
4. No change in Marginal Productivity of the inputs including labour [as well as others].  This means that the slopes of Total Product curves of Labour and Capital remain constant. In other words the partial derivatives of Total Product curves of Labour and Capital remain the same as they were before the unemployed become employed. Some other assumptions may be needed too.

Empirical research possibilities:

If above assumptions are satisfied, then OPW can be a proxy measure of the Output per unemployed labourer forgone by society on account of their unemployment. Data on Aggregate Output and Labour statistics, at least in the case of the U.S., where Labour statistics are available to some extent can be extensively used. As for India, proxy variables can be used. More on this later.

P.S.: Couldn't add mathematical equations I wanted to as such a feature isn't available here.

-Regards.

Cooperation and the Modern Organization

Image source:  http://europamedia.files.wordpress.com/2011/05/cooperation-international2.jpg

This post is a brief analysis of Modern Organizations- the molecules of Economic Production. It aims at bringing out the inherent co-operative nature of traditional[orthodox]{1} organizations of Modern Economies. It thus attempts to bring to people's conscience that Cooperation and Cooperative Management are highly relevant concepts, not only to understand cooperative Organizations but also to enrich one's knowledge of modern Organization realities.

Cooperation: 

To undertake production in a modern Capitalist Organization{2}, medium or large sized, strict cooperation{3} is at the heart of harmonious economic activity, the smooth running of the economy. It is not that people had not cooperated to produce Commodities{4} in previous forms of societies- eg. under ancient communism, slave, feudal, and others. There too, cooperation was the ultimate necessity facilitating production. But, it is only under the modern mode of production[called Capitalist mode] where a comparatively large number of labourers are required to cooperate and produce.

A modern form of organization pre-supposes: 1). A highly specialized and complex division of labour within the Organization itself, 2). A complex division of labour in society, and 3). Cooperation of the labourers involved in the process of production.

It is this third aspect that is very essential to understand the concept of Cooperative method of Organizing and its inherent existence in every form of Production organization. We thus see, that Cooperation of labour is evident in every modern 'firms'{5}- be it Microsoft, Google, a Textile unit or any other production site{6}. Harmonious acceptance of each other and of the method of production along with the acceptance of the way it is organized, the political-legal back up it has in terms of property relations, the structure and content of labour-process, is what helps in daily reproduction of the given society in its current form.

Cooperation: Heart of the economic molecules

Every firm{7} that exists today, exists only because the labour force employed under it obeys the larger social-economic categories that create and sustain the modern forms of production. For eg. Suppose a strike occurs{8}. News of workers' strikes are common. At these moments do we realize how important the mutual cooperation of labour-force is. Whenever there is a disequilibrium in this set-up, in the uninterrupted flow of cooperative work within a traditional organization; the importance of this element is seen, naked in front of our eyes. 

It is very important to protect this mutual harmonious work-flow in order to sustain healthy economic activity, failing on which the economic system in dominance can come to a stand-still{9}. Many different processes have to be undertaken, outside the firms in order to sustain the given form of mode{10}.

Cooperative Organizations: A different class-structure

Hence, we see that any form of firm needs cooperation at its heart in order to reproduce itself profitably, daily. Still, we do have a completely separate discipline of study that confines itself only to Cooperative forms of Organizations. Such organizations, though rest on the same fundamental element{11}, still differs from traditional organizations in one very important way- the difference of internal class structure{12}.

In private or public organizations, the produce of the firm is a property of a particular individual or a group of individuals, but not of the direct producers. While in a Cooperative organization the produce of the firm is under ownership of the direct producers- the decisions regarding which are taken by the direct producers themselves. Hence, the need to undertake a separate study of this concept.

Conclusion:

Cooperation is at the heart and profit-chart of modern market-based profit-oriented firms. Lack of mutual harmony among themselves and with the larger social-economic variables around them, results only in disruption and crisis in the Economy- given a relatively labour-dominated industry/economy. The belief that Cooperation and Cooperative Organizations are alien and different than traditional Organizational set-ups is incorrect. As we saw, every firm, be it under any social-economic system, is a cooperative firm, where labourers work under complete harmony. Any disequilibrium to this fact results in interruption in the production process and hence in the entire economy. 

In modern times, we have separate disciplines such as Motivation, Leadership, Human Resource Management and a plethora of others whose ultimate aim, it seems, is the sustaining of Cooperation of the labour-force, both within the firm and within the Society at large. 

Notes:

1). Here referred in reference to modern private/public enterprises.

2). Medium or Large scaled, employing many labourers.

3). Cooperation that is a must, for working in a given firm, to which every employee must obey. This is based on Company's rules/regulations/etc.

4). Here referred to as simply any Good or Service produce for selling to others.

5). Used in the sense as in microeconomics

6). Irrespective of its produce- Goods or Services.

7). As in point 5

8). Any event or issue that stops the production process can be equally used here

9). Not to suggest that only this particular reason can cause crisis

10). For eg. Ideological, political, intellectual propaganda

11). i.e. Cooperation of labourers

12). More on this concept- refer Richard Wolff's website and Books

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