Capital-Labor Ratio

Capital-Labor Ratio

 

in socialist economics, an indicator that characterizes the quantity of fixed production assets in branches of material production on a per-worker basis. The ratio is obtained by dividing the book value of these assets for a given year by the number of workers employed during that year. Allowances are made in the totals for workers (and assets) employed for only part of the year.

The capital-labor ratio is used in economic analysis and planning. Ratios vary from industry to industry owing to differences in production processes and in engineering and design features and prices of fixed capital stock. In 1975, the capital-labor ratio for industry as a whole in the USSR was approximately 9,000 rubles; on kolkhozes, sovkhozes, and other state agricultural enterprises, it was 6,200 rubles. Differences in the ratio are even more pronounced between the various branches of industry. In the same year, there were 3,000 rubles of capital for each worker in light industry, 22,000 rubles per worker in ferrous metallurgy, and almost 96,000 rubles per worker in the oil-extraction industry.

The rise of the capital-labor ratio is an objective economic process brought about by the quantitative and qualitative growth of the means of labor. This rise, which is characteristic of all

Table 1. Growth in the capital-labor ratios in branches of the USSR national economy
 19701975
Industry as a whole ...............134190
Electric power generation ...............158214
Fuel production ...............156243
Ferrous metallurgy ...............140196
Machine building and metalworking ...............130183
Light industry ...............138198
Food processing ...............133191
Agriculture ...............156265

branches of material production, reflects increases in the level of technology and the ever greater substitution of machines for human labor. The growth of the capital-labor ratio has been especially rapid within the context of the scientific and technological revolution, when new types of equipment with higher unit capacities and production techniques promoting further automation have been introduced on a broad scale. Between 1965 and 1975, for example, the number of mechanized production lines in USSR industry increased by a factor of 2.7, and the number of automatic lines increased by a factor of 2.9; the number of totally mechanized and automated plant shops and production processes tripled, and the number of fully automated enterprises increased by a factor of 2.8. Many types of operations that were previously performed manually, particularly in the extractive industry, have been virtually or totally mechanized. The most rapid increase in the capital-labor ratio has been seen in agriculture, where a large-scale acquisition of new equipment has made possible increased production with a smaller work force.

The rise in the capital-labor ratio stems not only from the rapid and thoroughgoing introduction of systems for the mechanization and automation of basic production operations. Also important is the application of technology to the control of production processes. A rise in the capital-labor ratio increases the productivity of labor, makes production more profitable, reduces unit costs, and improves product quality.

The growth in capital-labor ratios in the USSR national economy from 1970 to 1975 is illustrated by the data in Table 1 (in percent; 1965 = 100 percent).

Economic gains are maximized when labor productivity grows faster than the capital-labor ratio. In such a case, the rise of the capital-labor ratio is accompanied by an increase in capital productivity.

L. E. BABASHKIN

References in periodicals archive ?
If the elasticity of substitution between capital and labor--the percentage change in the capital-labor ratio in response to a percentage change in the relative cost of labor and capital--is greater than one, the lowering of the cost of capital results in a decline in the labor share.
However, the increase's impact on structural transformation was mitigated partly by the export of populations to its colonies and partly by absorbing the labor force into industry, which was favored by a low capital-labor ratio.
Elsby, Hobijn and Sahin (2013) find that part of the long-term decline in the labor share may be explained by the offshoring of labor-intensive production processes, which has led to a higher capital-labor ratio in U.
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In contrast, higher capital-labor ratio and productivity in the primary sector for the same period go hand in hand with its shrinking size of labor force (Haltmaier 2013).
Following Dong and Zhang (2009), Hellerstein and Neumark (1999), and Rickne (2012), these vectors include firm age, market share, the capital-labor ratio, and provincial fixed effects.
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Notice that the notation makes clear that prices depend on the entire distribution of agents, since this distribution will determine the aggregate capital-labor ratio the following period.