Question

1.4

According to the Organization for Economic Cooperation and Development (OECD), labor productivity increased and unemployment also increased in Australia from 2013 to 2014. Explain why an increase in labor productivity and an increase in unemployment are not likely to coincide in the long run. Can you think of any explanation for these changes to simultaneously occur in the long run?

2.4

In 2017, the CEO of Google, Sundar Pichai, earned $1,333,557 in total compensation (salary, bonuses, and other compensation) and Cristian Samper, the president and CEO of the non-profit Wildlife Conservation Society, earned $1,320,978. How can a non-profit organization like the Wildlife Conservation Society justify compensating its chief executive at a similar level to the CEO of a successful for-profit company like Google?

Answer 1

Answer to Question 1.4)

Meaning of Labour Productivity and Unemployment: -

Labour Productivity simply refers to the total amount of goods or services which a country can generate per unit of time. When people work in any country, they become specialized in the kind of work they do. Further, technology is added in the country and this leads to an ultimate increase in productivity wherein you begin to increase your production levels per unit of time.

Moving over to unemployment, it refers to the number of people that are qualified and are in search for employment opportunities for themselves, but are still not finding a job.

Effects in the Long Run: -

In the long run, when labour productivity is on the higher side, and is seen to increase over a period of time, the unemployment levels of a country cannot be high and increasing generally. This is because of the fact that such economies are largely seen to be safe heavens and people invest more money in them because of the fact that they can produce a higher number of goods as well as services here.

If the labour force is productive it basically is a win win situation for a country as it is able to produce far more resources than any other country would in the long run. This therefore helps in reducing unemployment levels as production as well as investment remains on the higher side.

We can conclude by saying, that in an economy wherein labour productivity is higher, companies within the country and from outside tend to invest higher so as to avail this increase in production. As a result, in the long run, unemployment levels in such economies is generally expected to be lower or decreasing.

Exceptions to the Above: -

One of the key exceptions to the above concept is that of frictional unemployment. Frictional Unemployment basically refers to a situation wherein, people leave their current job roles in search for better ones which may pay them a better salary or involve better skills which would lead to them earning higher than what they currently do.

In that situation, even when people may relatively be more productive at work wherein technologies may be expanding and the workforce may be highly productive, yet there may be some people who would search for jobs which are higher in terms of the payments they receive or the skills which are required thus leading to a rise in unemployment levels in the country for a small period of time.

Answer to Question 2.4)

The difference between a profit and a non-profit organization is limited to the fact that while, a profit-making enterprise provides its revenue to the shareholders which it may have, non-profit organizations, use the collected profits as reserves and re invest into areas which may require further investment.

Apart from the fact that how profits are redistributed among profit and non-profit making organizations, the need to generate revenue for both enterprises remain the same.

Non-Profit Organizations also require money to be spent on things such as marketing, promotion, production etc. as much as private companies do. This revenue may be generated from the operations of a non-profit making organizations or from periodical grants and donations which it may receive from other people.

Thus, the ability to generate revenue for both remains the same. Therefore, when we compare salaries of people like Sundar Pichai and Christian Samper, we need to know that both contribute towards adding revenue for a company. This revenue generation is the reason why they are paid in the ways that they are.

The similar salaries point out to the fact that the revenue generated in the Non-Profit Organization would be good enough for him to receive that amount of salary which is comparable to a profit-making organization.

We can therefore conclude by saying, that even though the purpose of economic profits is missing in a non-profit organization, it still makes revenue which is reused within the company. This leads to obligations for those that work in the organization and may have a motive of only making salaries irrespective of the nature of the organization they work in or its characteristics thus allowing for similar salaries between a profit-making companies CEO like Sundar Pichai of Google and a non-profit Wildlife Conservation Society i.e. Cristian Samper. It is the nature and extent of revenue which both add which determines their wages not the nature of the companies they work in.