Capital and unskilled labor are substitutes - Essay Example

Topic: Capital and Unskilled Labor are Substitutes Capital and Unskilled Labor are Substitutes Capital and unskilled laborare substitutes in the field of economics. Capital refers to any form of investment done with an aim of making profit. Unskilled labor is mostly manual and does not require knowledge of technical skills. If the capital invested in the business is low, there is a high chance that the labor employed will be unskilled. Inexperienced employees would lead to low production. Capital is made up of raw materials, apparatus of labor and a means of ensuring the continuity of production of new raw materials, new apparatus and new means of continuation.

These are the factors that facilitate the growth development and expansion of a business. One would therefore have to understand the importance of labor in maintaining the production of more capital for a business.There is an immense similarity between the capital invested in a project and the type of labor it can afford to hire. This is also determined by the materials used by the business as it grows and ensuring that it rises. Production takes place when all the integral parts of an organization or business work together to attain a goal that will contribute to the whole company as well.

It is particularly through these social relations to each other that that each part influences the other (Krusell 2000). These interactions between the manufacturers and the atmosphere within which they trade tasks and contribute to the complete construction usually differ depending on the nature of the method of production.Capital also involves the exchange values. It is hence a computation of property, trade ethics and social extent. It maintains its value regardless of the form in which it is invested in.

Basically; capital always has a constant value of exchange. For instance, if the capital is in the form of land the exchange value will still remain the same. The commodity may appreciate or depreciate in value but during transformation its exchange value will not be altered. This shows that all factors are interrelated in one way or another so as to produce an end result that favors each integral part of the system (Johnson 1997).A laborer will receive a mode of survival in return for his services.

Substitution of capital with unskilled labor would depend on how much initial capital was invested. Low capital investment would not enable employment of skilled labor as this would reflect unrealistic allocation of finances. Therefore, low capital investments will lead to employment of unskilled labor. A workforce that does not have adequate skills would not result in the best performance of a business. This also means that capital produced will also be low and expansion will be much slower.

However, economist Loukas Karabarbounis together with Brent Neiman previously documented the decline going on globally in the amount of resources going to labor (Griliches 1969). The two educated scholars the technology has greatly contributed to the decline of the labor portion of money as a result in the fall of investment commodities.In conclusion, it is important to note the value of correlation between all aspects of an operating economic system. There is a high supply of skilled laborers who are eager to offer their services.

The unskilled laborers also play their role in contributing to the development of the economy. Without each factor then the system would be incomplete even with the advancement of technology. Even as capital and unskilled labor are substitutes, the two can gradually be developed into very strong system overtime given that sufficient planning is done. Every financial success starts up with a particular background containing an idea and a will and determination to see it through. ReferencesGriliches, Z. (1969). Capital-skill complementarity.

 The review of Economics and Statistics, 465-468.Johnson, G. (1997). Changes in earnings inequality: the role of demand shifts. The Journal of Economic Perspectives, 41-54.Krusell, P. (2000). Capital‐skill complementarity and inequality: A macroeconomic analysis. Econometrica, 68(5), 1029-1053.