Productivity is calculated by combining the time used for creating something as well as materials to divide them later equally. Therefore, productivity refers to the rime needed for making something or the efficiency of ensuring that a job is done. Usually, it incorporates such components as labor, capital, and materials required to make the product or provide a service. When it comes to production, the exchange of things needed is referred to as trade-offs. Thus, in a working environment, both capital and labor are the most common things that could be traded by organizations. As a general rule, capital and labor are considered trade-offs at organizations because managers hire individuals to do their labor, and thus they are expected to work and produce a product. However, as they complete their work, no productivity will be taking place. If there is no capital available to pay workers, the latter cannot continue fulfilling their responsibilities, which negatively influences productivity. Therefore, organizations must consider both productivity and capital to ensure the success of the production and make every assignment productive and cost-efficient.
The possibility of a trade-off existing between employment and productivity growth has the potential of creating uncertainty regarding job creation and organization as well as the attempts to improve productivity. According to Tang (2015), employment growth can be negatively correlated with the growth of productivity when it comes to providing goods or services. However, this is not considered a trade-off but rather an outcome that emerged from market forces associated with the reallocation of production resources to achieve a rebalancing of adjustments in the conditions of supply and demand within different industries in both local and international economies. At an aggregate level, the growth of employment has the potential of being negatively related to labor productivity growth due to its adverse influence on the quality of labor and the intensity of capital. However, Tang (2015) found that if the input factors are being controlled, employment growth does not have an adverse effect on multifactor productivity growth.
When it comes to the trade-offs associated with inputs, it is essential to consider trading capital for labor, trading capital for materials, and trading materials for labor. Trading material for labor results is less labor but more substantial productivity increases. This is possible with the help of innovative technologies, such as computers, robots, registers, and other equipment. When organizations invest in technologies, there is a weaker demand for physical labor, which leads to an overall productivity increase. Trading capital for materials leads to companies investing in new and improved equipment that increases the productivity associated with materials and energy. When manufacturers can invest in machines that can produce more products and spend less energy and materials, producers can have better results in terms of the number of product outputs.
When producers replace labor with materials, they spend more on materials in order to reduce labor costs. In such situations, organizations will consider outsourcing to keep the costs of production low while keeping productivity high. Because of outsourcing, it is possible to manufacture more goods at lower costs while utilizing the same fixed costs that that would still have been spent on-site. Therefore, there are multiple ways in which organizations can use trade-offs in inputs, and their choice usually depends on the potential improvement in productivity.
Reference
Tang, J. (2015). Employment and productivity: Exploring the trade-off. International Productivity Monitor, 28, 63-80.