14. Productivity - labor and capital efficiency

Here, the efficiency of capital and labor is increased and the demand for both factors falls. The experiment produces a general reduction in production costs, therefore, a long run gain in foreign trade and domestic production. Table 14 presents the effect of a permanent 1 percent increase in the efficiency of labor and capital.(See experiment)

 

Table 14. The effect of a permanent increase in labor and capital efficiency

    1. yr 2. yr 3. yr 4. yr 5. yr 10. yr 15. yr 20. yr 25. yr 30. yr
    Million 2010-Dkr.
Priv. consumption fCp 690 597 1126 1879 2481 3070 2316 2356 3234 4363
Pub. consumption fCo -41 -65 -85 -104 -122 -208 -287 -363 -435 -505
Investment fI -3954 -3983 -851 970 1873 3345 2391 1660 1615 1839
Export fE 2948 4935 7030 9176 11322 20517 25692 27708 28317 28761
Import fM -1559 -1215 701 2037 2864 5310 6154 6699 7244 7732
GDP fY 1159 2654 6292 9565 12266 20625 22962 23554 24305 25480
    1000 Persons
Employment Q -16,50 -17,66 -15,73 -12,97 -10,09 1,15 4,30 3,53 2,11 0,96
Unemployment Ul 8,92 8,93 7,83 6,42 4,97 -0,64 -2,17 -1,77 -1,05 -0,48
    Percent of GDP
Pub. budget balance Tfn_o/Y -0,07 -0,12 0,00 0,11 0,21 0,52 0,59 0,60 0,62 0,67
Priv. saving surplus Tfn_hc/Y 0,17 0,26 0,10 -0,03 -0,10 -0,22 -0,09 0,01 0,03 0,02
Balance of payments Enl/Y 0,10 0,14 0,09 0,08 0,10 0,30 0,50 0,61 0,66 0,69
Foreign receivables Wnnb_e/Y 0,52 0,86 1,00 1,10 1,22 2,14 3,79 5,80 7,82 9,69
Bond debt Wbd_os_z/Y 0,27 0,41 0,40 0,29 0,09 -1,71 -3,88 -5,80 -7,47 -9,02
    Percent
Capital intensity fKn/fX -0,14 -0,31 -0,53 -0,70 -0,81 -1,05 -1,01 -0,95 -0,91 -0,87
Labour intensity hq/fX -0,69 -0,84 -0,98 -1,06 -1,10 -1,12 -1,07 -1,05 -1,05 -1,06
User cost uim -0,45 -0,59 -0,71 -0,82 -0,93 -1,19 -1,17 -1,07 -0,98 -0,92
Wage lna -0,36 -0,70 -1,01 -1,27 -1,49 -1,86 -1,61 -1,28 -1,04 -0,91
Consumption price pcp -0,45 -0,62 -0,77 -0,91 -1,03 -1,37 -1,40 -1,33 -1,25 -1,19
Terms of trade bpe -0,32 -0,43 -0,53 -0,61 -0,68 -0,86 -0,83 -0,76 -0,69 -0,65
    Percentage-point
Consumption ratio bcp 0,05 -0,04 -0,03 0,02 0,06 0,10 -0,01 -0,09 -0,10 -0,08
Wage share byw -0,16 -0,30 -0,42 -0,49 -0,53 -0,47 -0,31 -0,20 -0,15 -0,13

(See details)

 

Higher efficiency of labor and capital means that both factor inputs can be reduced, consequently investment and employment fall in the short term. The fall, particularly in machinery investment, reduces imports and depreciation, which increases gross operating surplus. As factors efficiency increases prices fall and net exports increase without relying on change in wages. Higher net exports increase production and employment. This offsets the initial fall in employment created by the increase in labor efficiency.

 

The initial fall in employment pushes wages and prices downward. This improves competitiveness and induce exports to rise even more. As in the previous experiment, the combined effect of higher efficiency and lower wages means that the short-term decrease in factor utilization disappears relatively quickly and the initial negative impact on employment is reversed quickly. In the long term, capital intensity and labor intensity fall by approximately 1 percent, excluding the housing sector.

 

There is a small positive impact on private consumption in the long run, due to the positive impact on real disposable income, which is stimulated as the higher productivity increases the real income of transfer recipients. The public budget improves in the long term.

 

Figure 14. The effect of a permanent increase in labor and capital efficiency

 

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