Productivity deception

We showed in previous article that productivity is related to competitiveness. We mentioned that productivity is also related to per capita income. Countries have high per capita income because they have high productivity. As it will be shown, productivity is not the only factor. Hours worked also play a role, as long as they do not change due to population changes.

Productivity is basically quantitative. In order to be able to compare or add different products and services, productivity is expressed in monetary value. We used an example of two factories. In Factory A, a worker produces 100 pairs of athletic shoes in 160 hours. In Factory B, a worker produces 135 pairs of shoes in the same period.

Let's say a pair costs makes 40 euros when leaving the factory. What is the productivity of the two factories in monetary value? If we do the calculations, in Factrory A it will be 25 euros per working hour and in Factory B 33.75 euros per working hour. That is, in the second, a greater value of product is produced per hour of work.

100 X 40 = 4000   4000/160 = 25           135 X 40 = 5400    5400 / 160 = 33.75

This is just shown to make it easier understood. In reality, total product produced in a period is divided by the total hours worked by all workers. If prices change, productivity expressed in monetary value will change, even though there may not be changes in quantities. Labor is not the only factor of production. The costs of raw materials, energy, real estate, machinery, office equipment, etc. contribute to the cost of the product.

Productivity is closely related to per capita income in a country. Each sector consists of many businesses. Sector productivity is the average of all firms in the sector. A country's economy consists of many sectors. A country's productivity is the average of the various sector's productivities that make up the country's economy.

Productivity = value of products and services produced / hours worked --->   Value of products and services produced = Productivity X hours worked ---> GDP = Productivity X hours worked

Productivity is the quotient (value of products produced / the hours worked). Therefore, the value of total produced goods and services in a country is the product of productivity times the total hours worked. The monetary value of all the goods and services produced in a country is Gross Domestic Product (GDP). So, GDP is the product of the country's productivity times the total number of hours worked.

Per capita income = GDP/ population --->  Per capita income = ( Productivity X hours worked) / population

Per capita income which measures how rich a country is, is the quotient of the GDP by the total population. If productivity or total hours of work increase, GDP increases and per capita income also increases. If the increase in working hours is due to an increase in population, per capita income may not increase. The increase in working hours should be proportionally greater than the increase in population.

Hours worked depend on the labor force's percentage in total population, unemployment rate, rate of underemployment and seasonal employment, hours worked per week. There are a few ways to increase hours worked a) increase labor force's perentage in total population b) decrease unemployment c) decrease underemployment and seasonal work d) increase hours worked per week. Labor force's percentage in total populaton can increase if more women work, young people enter earlier the labor force, older workers retire later.

A country's productivity increases in two ways. One way is to improve the productivity of existing sectors. This can not happen if sectors are less productive than other in damned EU because they will not survive. In order to improve, something that is possible, first they have to survive, which is impossible due to EU's defective model. So countries with lower per capita income, can not improve their productivities.

More important for productivity improvement is the shift to high productivity sectors, if it is not already happening. Anathematized EU restricted countries with lower per capita income from specializing in high productivity sectors. These are a privilege of richer countries and those who control EU. Examples of high productivity sectors are manufacturing, financial services, information technology.

When countries shift to more productive sectors, they will not be able to reach high levels of productivity right away. The same issue arises, as with improving existing sector's productivity. In order to improve, which is possible, first they will have to survive, which is impossible because of EU's deficient model. So in damned EU, countries with lower per capita income, which have lower productivity, can not improve their productivity. They are doomed to stay at low income levels.

We need to mention one factor, capacity utilization. It is the percentage of production potential that is used. It doesn't have to be 100% and very rarely this happens. It should be though at a decent level, 85% is considered good. Even if a firm or a sector has the potential to be productive, when utilization ratio is low, it will be unproductive.

Anyway we see it, we come to the same conclusion. Eastern European countries have to leave damned EU immediately and form a seperate group. Of course, even if they leave, EU's MODEL will still be FLAWED. There will still be a problem with the less productive countries that have lower per capita income. But the problem will be smaller and more manageable. For Eastern European countries there would not be problem anymore because EASTERN EUROPEAN GROUP'S MODEL is NOT MALFUNCTIONING.

What they will do in Western Europe's group is their concern. EU is a Western European creation and they sould clean up their mess. Eastern European Group's main concern would be to reach Western Europe's per capita income, the soonest possible. It could be as soon as 10 - 15 years. Although this is very optimistic, it is not possible. Even if this does not happen, 25 - 30 years is realistic. If they stay in damned EU, it will never happen.