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
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.


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.
In addition, when observing rainfall and temperature in the previous period, farmers are willing to adapt to the situation through changing R&D knowledge stock, infrastructure, capital-labor ratio to adapt to the new environment.
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.
The average productivity improvement based on the capital-labor ratio from 1980 to 2012 was 1.
To preview our results, we find that reallocating public resources can affect the productivity of some firms in the short to medium run (our data do not allow us to describe longer term impacts), where we use the capital-labor ratio to differentiate different types of firms.
Two key implications emerge from this simple model: First, labor's share is a function solely of the capital-labor ratio expressed in efficiency units, k.
If the elasticity of substitution is less than one, then an increase in the capital-labor ratio will reduce the proportion of total income going to capital.
The Chamber's suggestions in the Government's program include enhanced economic growth and new jobs, macroeconomic stability, accountable fiscal policy, low taxes, social contributions and other taxes, investments for improved infrastructure, further improvement of the business climate and workforce quality, guaranteed private ownership, appropriate capital-labor ratio, efficient regulations, judiciary and agreement protection etc.
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.