Raising Productivity to Unlock a Countrys Economic Potential - Literature review Example

Table of Contents Raising productivity to unlock a country’s economic potential 3 The government should play a role in solving the unemployment problem 5 References 9 Raising Productivity to Unlock a Country’s Economic Potential Raising productivity is very important in unlocking the economic potential for a country. It is in fact one of the best ways through which developing countries can achieve substantial and sustained economic growth that will help keep poverty levels much lower. Productivity refers to the quality of products that the workforce produces in a given amount of time provided that there are necessary skills and tools available to perform the work (Kohli, 2012). It is the ratio of the output of production to the inputs required to produce the products. Such inputs include land, labor, capital, energy, necessary raw materials among others. Productivity is measured in terms of total output produced per one unit of the total amount of inputs (Kohli, 2012). Economic growth on the other hand can be defined as a substantial increase in the output of a production process (Kohli, 2012). More developing countries face a lot of challenges as they try to improve their economy in their quest to become industrialized nations. Most developing countries have a great potential to develop and this can only be realized to the fullest of proper planning is done. The most effective approach these countries can use to realize their full economic potential is by raising their productivity (Freeman, 2008). In order to improve its economy, a country is supposed to create highly productive jobs for the population. This will help the country unlock its potential by maximizing on then available labor to increase production. Generally, the more productive jobs there are in the economy, the richer the country is likely to be (Kohli, 2012). An increase the number of high productive employment opportunities will help the economy grow by increasing the productivity of the workforce, which ultimately implies more output and an increase in wages. This will improve the living standards of people in the country, as they will have a higher spending power from the wages they receive from their employment. This implies that there will be a high demand for goods and services in the economy. The living standard are also likely to increase because there will be more real income which will increase peoples purchasing power (Kohli, 2012). Companies and businesses will also be in a better position to meet all their obligations to their suppliers, employees and customers and still remain as competitive as ever or even increase their competitiveness (Hulten, 2009). Various factors however have to be considered when increasing the productivity of a country. It has to be an all rounded approach because only focusing on increasing high productive jobs can be meaningless to the economy if there are no high productivity people to provide their labor in the available jobs. This also goes the same for having a highly skilled workforce without highly productive jobs for them to exploit their skills. In order for the economy to grow at a substantial and sustainable rate, the rate at which the country is raising its productivity needs to be increasing at a much faster rate (Hulten, 2009). There are various factors that developing countries ought to focus on in order to raise their productivity and realize their full economic potential. These factors are known as the drivers or indicators of productivity growth. These factors can be explained as follows; Increase in investment. In order to raise its productivity, a country needs to increase its investment in fixed capital such as buildings, machinery and equipment (Hulten, 2009). If there are more tools available to the workers, they stand a higher chance of increasing their productivity by using the available tools to increase their output. The output of their labor is more likely to be of a higher quality, as compared to working with limited tools. Innovation is also important in helping a country raise its productivity. Innovation refers to the ability for a country to successfully exploit new ideas. New ideas could be new products entering the market, new technologies to improve production, new corporate and business structures as well as new ways of ways of working. These innovations can help a country increase its productivity, hence economic growth (Hulten, 2009). Increasing the quality of skills in the country’s workforce will also lead to increased productivity. This will help improve the workers skills in terms of technical knowhow, management as well as general knowledge of what is expected from them. This can be achieved through high quality education and training of citizens (Hulten, 2009). The quality and quantity of the labor available should complement the fixed capital available so as to help the country take advantage of new technology to improve its productivity (Freeman, 2008). Entrepreneurship is also an important factor in improving productivity. This involves setting up new businesses by both established companies and startups. Growth of more businesses will transform to more employment opportunities and increased competition which will ensure that companies become more innovative as they strive to become more competitive. The overall beneficiary of this competition is the economy which is bound to grow from the high productivity caused by the competition (Freeman, 2008). The Government Should Play a Role in Solving the Unemployment Problem Unemployment can be defined as the situation where people who ought to be used in the production process are willing and able to be employed at the existing wage rates but they still remain unutilized or underutilized. Unemployment is one of the biggest challenges to developing countries, who have very high unemployment rates. This implies that there are qualified individuals within a population who can contribute to the economic growth of the country by participating in the economic process but for one reason or the other, they are not able to be absorbed in to the production system. There are various types of unemployment which occur from different sources. The most common forms of unemployment include open involuntary unemployment, in which qualified people are not absorbed in to the labor market despite being able to work at the existing rates (Freeman, 2008). The other common type of unemployment is open voluntary unemployment where qualified people prefer not to get employment. Unemployment has various implications on a country’s economic, social and political aspects. Unemployment could lead to an increase in social problems such as increased crimes which will discourage investors hence have a negative impact on the whole economy at large (Schreyer, 2005). There are various factors that could lead to unemployment, among them the inadequate job opportunities to accommodate all qualified individuals. In order to solve unemployment, various job opportunities have to be created, people have to be given incentives to invest in new business, the cost of living ought to reduce, and inflation should be kept very low among other things. Most of these measures can be taken care of by the labor market itself; however government involvement will help ensure that the rate of unemployment is kept much lower (Freeman, 2008). The government can do a lot to help reduce the level of unemployment in the country. The government can employ both fiscal and monetary policy measures to help reduce the rate of unemployment (Saari, 2006). Some of the fiscal measures the government can take include lowering taxes, subsidizing business investments, and increasing export values. Monetary policy measures the government can employ include reducing interest rates for loans to encourage investment. However, any policies and measures taken by the government to curb unemployment have to take in to consideration the sources of the unemployment being wiped out. By examining the specific causes of unemployment, the government will be able to address the unemployment problem from its root; hence the policies and measures taken are more likely to be very effective and successful (Saari, 2006). Some of the measures the government can take to reduce the rate of unemployment include; The government can help make the labor market more flexible so that it can easily adapt to changes in demands and supply. This will help deal with unemployment caused by real wages. In an ideal situation, real wages ought to increase when there is an increase in output, employment and demand. This may not however be the case in situations such as recessions (Saari, 2006). The government therefore has to help make the labor market more dynamic so as to help people earn higher real incomes even in times of recessions or economic downtowns. One of the best ways to handle this is through engaging talks with trade unions and employers to help find a minimum wage level for skilled workers. The government can also employ various measures to curb Keynesian unemployment. This can be done by raising the demand for goods and services within the economy (Saari, 2011). This can be achieved through the following measures; increasing government expenditure in fixed capital or education and healthcare, lowering tax rates, depreciating the exchange rate as well as lowering interest rates. Frictional unemployment can be reduced when the government reduces the values of unemployment benefits and instead improving job information (Saari, 2011). Reducing the rates of indirect taxes can also help mitigate frictional unemployment. Structured unemployment can be dealt with using different approaches. These include the government improving the geographical mobility of labor, where people can move freely across the country to offer their skills and labor. Finally the government can also invest in worker training so as to improve on the skills of workers and enable them to meet the new and emerging challenges in their respective fields (Saari, 2011). Bibliography Hulten, C.R., 2009. Growth Accounting. National Bureau of Economic Research. Freeman, R., 2008. Labour productivity indicators. OECD. Kohli, U. 2012. "Productivity: National vs. Domestic" (PDF). Sydney, Australia: EMG Workshop, University of New South Wales, November 21–23, 2012. Saari, S., 2011. Production and Productivity as Sources of Well-being. MIDO OY. Saari, S., 2006. "Productivity. Theory and Measurement in Business" (PDF). Espoo, Finland: European Productivity Conference. Schreyer, P., 2005. "Measuring Productivity" (PDF). Tokyo: OECD. Read More