Question

Why don’t wages measure the full return to labor?

Why is human capital the most important factor of production in a modern economy?

Answer 1

Soln. The basic reason for the wages to not measure the full return to labor is the advancement in technology. Company, compares the output of the labor relative to the advance technology, which creates big difference in terms of output in given period of time.Based on this differentiation, labors have reduced bargaining power in terms of increasing wages and they hesitate and do not feel confident in asking for increase in wages. Another reason, is the increase in part time work trend among the labor. This trend has tendency to be paid less in compare to same work done in full time employment.

Human, capital is the most important factor of production because of the availability of human capitals as per the skills and knowledge needed. Although, there are advancement in technology but still to operate those advance technologies, human capital is needed. Every thing else in the production is managed by human capital. Human capital is the driving power in the production process and hence the most critical factor.