Key Economic Concepts: Labor, Capital, and Productivity
Key Economic Concepts
Added Value
Added value is the difference between the value of goods produced and the cost of raw materials and intermediate goods used to produce them.
The Demand for Labor
The demand for labor is dependent on the demand for goods and services. For example, if the demand for goods increases, it will require more inputs, and therefore, employers will demand more productive labor. Conversely, when the demand for goods decreases, employers will reduce their demand for productive factors, adjusting to the actual level of demand.
The Decrease in Demand
A decrease in demand for goods and services, or an increase in the price of labor, may cause a reaction in the market. Employers may demand fewer productive factors and consequently try to reduce costs by hiring less labor.
Income from Land
Income from land is the amount levied on the rental or assignment of exploitation of natural resources. It represents the potential earnings if the land were fully exploited. Land combines two inputs: the land itself and human labor. It is a durable and reproducible productive factor.
Capital
Capital refers to the riches that are owned and devoted to the production of new goods or wealth. There are two types of capital:
Physical Capital
Physical capital includes the elements used in the production of goods and services, such as machinery and buildings.
Real Capital
Real capital consists of the physical elements previously obtained through productive activities, such as industrial buildings and machinery. Financial capital refers to the financial resources available to initiate a productive activity. The process of capital accumulation, including savings and investment, is called capitalization.
Interest Rate
The interest rate is the price at which an individual lends their money for a fixed period. There are two types:
Real Interest Rate
The real interest rate is the actual return on investment.
Nominal Interest Rate
The nominal interest rate is the stated return on each unit of investment money.
Definition of Salary
Salary is the remuneration obtained in exchange for labor or the accomplishment of a task; it represents the equilibrium wage. It is the point at which job seekers and employers agree to establish a labor relationship. The components of wages are:
- Minimum base salary: The amount to be paid to each employee.
- Supplements: The wage may include various types of incentives and bonuses granted to the employee as a reward for their dedication to work.
- Social benefits: These are benefits generally granted by many companies, often to senior employees whose knowledge is highly valued.
- Social security payments: Payments made by the company on behalf of the worker.
Business Profit
Business profit is the difference between total revenue and total accounting expenses. It is comprised of several elements:
- The implicit return of capital.
- The owner’s remuneration for possible risks of capital loss.
Productivity
Productivity is the amount of goods or services a country is capable of producing in a given time unit. It depends essentially on two elements:
- Human capital: The qualifications and training of the worker.
- The means of production: Resources used to maintain the level of production.
Economic Growth
Economic growth is based on the sustained and constant growth of productivity.
Excedent Redistribution Criteria
There are four criteria for excedent redistribution:
- Space: Function is divided into zones, regions, and provinces.
- Staff: Depends on the population.
- Sector: The income to be distributed among the different productive sectors.
- Wage: The distribution is made by retribucionde factors such as wages, rents, interest, or capital gains.