Factors of production are economic resources used in the production of goods and services (output or commodities). They are also known as inputs, economic resources or agents of productions. Factors of production are land, labor, capital and entrepreneur.

 

1. LAND

Definition

Land refers to all natural resources (free gift of nature) which are used in the production of human wants. It includes forest mineral deposits, river, land surface etc.

Characteristics of Land

• Land is a gift of nature: It has no cost of production.
• Land is fixed in supply: That is, the total supply of land in the world cannot be increased.
• Land is immobile: It cannot move on its own from one region to another but the products can be mobile.
• Land can be separated from its owner through buying and selling.
• The reward to land is rent: Those who own land and provide them for production receive an income called rent on payment.
• Land is subject to the law of admonishing returns: That is, as increasing units of other factors operate on land the marginal output may increase to an extent and begin to fall.
• Reward to land: The income earned by land as a factor of production is rent whereas labour is wage or salary, capital is interest and entrepreneur is profit.

 

1. LABOUR

Definition

Labour refers to all human efforts both physical and mental directed towards the production of goods and services and earns a reward known as wage or salary.

 

TYPES OF LABOUR

There are two types of labour;

1. Productive Labour

This is the type of labour which earns a reward during the process of production. Example: a teacher, a doctor, a banker etc; who receive their salary at the end of the month.

1. Unproductive Labour

This is labour which does not earn a reward during the process of production. Example: A house wife cooking food for her family, a painter painting his own house etc.

The Characteristics of Labour

• Labour is a human resource: It is provided by human beings.
• Labour cannot be separated from its owner: That is, mental and physical efforts cannot be separated from him.
• Labour is not bought and sold: Labour is hired to perform a given task or operate for a specific period of time.
• Labour is geographically and occupationally mobile: Workers can be moved from one region to another or can change occupation.
• The rewards to labour or the payment to labour as factors of production is wage and salary.
• Labour can be unskilled, semi-skilled or skilled.
• Labour is subjected to fatigue: It gets exhausted and become inefficient when over used.

CONCEPTS RELATED TO LABOUR

1. THE SUPPLY OF LABOUR

Definition: By supply of labour we mean the proportion of the population available for employment as well as the number of hours of work which is offered at a given period of time. The supply of labour is determined by the number of hours each worker is prepared to offer.

Factors Influencing the Supply of Labour

1. The Size of the Total Population

The higher the population, the greater the supply of labour and the lower the supply of hours.

 

1. Remuneration (wage rate)

Where the wage rate is high, more people will be attracted to work leading to a high supply of labour. If the wage is low, less people are motivated to work causing a low supply of labour.

1. The Age of the Working Population

In Cameroon, the working age grows from 18 years to 65 years. If minimum legal working age is high and the retirement age is low, it will lead to low supply of labour and vice-versa.

1. The Working Week and Holidays

Suppose the number of working hours per week is high and the number of weekly and annual holiday is low, the supply of labour will be high on the other hand, if the working hour per week is reduced and holidays are extended, the supply of labour will be small.

1. The Tradition and Customs of the People

The tradition of people in some communities prohibits women from working in certain occupations (such as in modern societies). In such communities where women are not allowed to work, the supply of labour will be low and if they are allowed to work in any company, there will be a high supply of labour.

1. The Length of Education and Training Period

The more time is spent in education and training, the supply of labour will be low and if less time is spent, the supply of labour will be high.

1. THE DEMAND FOR LABOUR

Like any other factor of production, the demand for labour is a “derived demand”. That is, labour is not demanded for its own sake but for the production of goods and services.

FACTORS THAT INFLUENCE THE DEMAND FOR LABOUR

1. The Demand for the Output Labour

An increase in the demand for the commodity produced by labour will cause the demand for labour to increase. Meanwhile a decrease in the demand for its outputs will cause the demand to fall.

 

 

1. The Price of Labour (Wage Rate)

If the wage rate is lower than the price of its substitute machine, or can produce higher quantity products than machines. Many producers will prefer labour and its demand will be high, the reverse is true.

1. The Product Opportunity of Labour

If labour for any reason is more productive than the machine.

1. The Marginal Revenge Productivity of Labour (M.R.P.L)

Entrepreneur will continue to employ labour if the marginal revenue productivity of labour is greater than marginal cost (MC) of labour because by so doing it adds more to his revenue than cost.

1. The Nature of Trade Union

If the trade union is close shop where someone must be a member before being employed, the demand for labour will be lower than open shop trade union.

1. THE EFFICIENCY OF LABOUR

It is the ability of the worker to achieve a greater output in a short time without a fall in the quantity of work done. It is also the maximum average output per worker.

Factors Determining the Efficiency of Labour

1. Education and Training

A well trained and educated labour force is more efficient than an untrained and uneducated labour.

1. The Working Condition

Good working conditions like ventilation, clean environment etc exchange the efficiency of labour.

1. The Welfare Service

The provision of welfare services such as medical facilities, education, a family allowance, free housing etc encourages efficiency of labour.

1. The Efficiency of Other Factors

When other factors like capital and entrepreneur are of high quality, efficiency will be high, labour itself will be less efficient if it is banned by poor quality of other factors of production.

 

1. Job Satisfaction

If a worker is carrying out a job that makes him happy, other things being equal, he will be efficient and vice-versa.

1. THE MOBILITY OF LABOUR

It is defined as the ease and willingness with which labour can move from one geographical area to another or from one occupation to another.

TYPES OF MOBILITY OF LABOUR

There are two types of mobility of labour namely;

• Geographical mobility of labour
• Occupational mobility of labour

 

1. GEOGRAPHICAL MOBILITY OF LABOUR

This is the movement of workers from one geographical area to another. Example include; Movement of workers from Bamenda to Douala, Cameroon to U.S.A.

THE CAUSES OF GEOGRAPHICAL MOBILITY OF LABOUR

1. Transfers and promotion lead to the movement of worker to their new stations.
2. Climatic Hazards: A worker who is uncomfortable with the climatic conditions can be moved to an area where the climate is favourable.
3. The need for higher education and training institutions may cause workers to move to new regions.
4. The search for better job opportunities.

OBSTACLES (HINDRANCES) TO GEOGRAPHICAL MOBILITY OF LABOUR

1. Monetary Cost

Moving with family and property requires huge expenditure on transport fare and as such workers are reluctant to move.

1. Risk Involved in Moving

These are risks of accident, damage to properties in the course of loading and off-loading etc.

1. Social Ties

Many workers are reluctant to separate from friends and relatives to face the new relationship in a strange town.

1. Housing Problems

Workers are not very willing to move to areas where it will be difficult to have comfortable houses at affordable prices.

1. High Cost of Living

Some workers prefer to stay in rural areas where the cost of living is low than urban areas where the cost living is high.

1. Climate Hazards

Some workers remain in certain areas where climatic conditions are favourable than to move to areas with unfavorable climate.

1. Ignorance About the Existence of Better Job Opportunities in Other Regions

Some workers remain unemployed or in a particular area because they are not aware of a better job elsewhere.

1. The Fear of Disrupting Children Education

Many families are reluctant to move at a certain stage of their children’s education.

MEASURES USED TO PROMOTE GEOGRAPHICAL MOBILITY OF LABOUR

1. Provision of information about the existence of job opportunities. In Cameroon, this is done through National Employment Fund, news-paper, radio and television.
2. The government and trade unions should provide travelling allowances to workers on transfers.
3. The educational system should be the same and distributed to all parts of the country.
4. The government and other employers should match payments to the cost of living in various areas so that the real income of workers should be the same everywhere.
5. The government should construct residential houses in congested regions and offer them at moderate prices to workers.

 

1. OCCUPATIONAL MOBILITY OF LABOUR

It refers to the ease with which labour moves from one occupation to another. Eg: A teacher becoming an Engineer.

Types of Occupational Mobility of Labour

1. Horizontal mobility of Labour

This involves the movement of labour from one category of occupation to another firm in the same category. Example: A teacher from S.H.C Douala to G.B.H.S Deido.

1. Vertical Mobility of Labour

This involves movement from one occupation to another with in the same industry or different industry. Eg: A teacher becoming a medical doctor.

THE FACTORS WHICH CAUSE OCCUPATIONAL MOBILITY OF LABOUR

1. The Search for Higher Wages

Causes workers to move from low paid jobs to high paid jobs

1. Promotion and Transfer

Cause workers to move from low category jobs to high ones and to their new stations.

1. Inability

Can cause workers to move from jobs in which they become handicaps to new ones which can accommodate their present conditions.

1. Monotony

A worker may lose interest in a job which he has done for long and prefer a new job.

1. Technological Development

The introduction of new techniques of production can cause workers to become unfits and have to switch to another job.

THE BARRIERS (OBSTACLES) OF MOBILITY OF LABOUR

1. Natural Mobility or Talent

Some occupations required high skills and intelligence which is possessed by few people. Eg: Doctors, pilots, footballers.

 

1. The Length and Cost of Training

Many professions required a long time and high expenditures on training at education. Eg: Doctors, engineers.

1. Ignorance About Existing Jobs

Workers who are not aware of better jobs always remain in their present jobs.

1. Trade Unions Restriction

Trade unions sometimes ban the entry of workers into certain occupations except under very hard conditions.

1. Discrimination

In some countries, occupational mobility of labour is hindered through discrimination, which is based on sex, race, age etc.

1. Job Satisfaction

That in love and devotion for one’s job. People at times are very happy with their recent jobs and do not want to change to others even if the wage rate there is very high.

1. The Wage Rate

Other things being equal, if a worker is well paid. He will be reluctant to more to a lower paid job.

MEASURES USED TO PROMOTE OCCUPATIONAL MOBILITY OF LABOUR

1. Institutions which offer retraining and in service training should be created to ease the training for new jobs.
2. The workers should be informed about job opportunities in other occupations and formalities of transferring into them.
3. Workers should be educated in the benefit of various jobs opportunities so that they can see the need to move into new and better occupations.
4. The government should pass laws which restrict trade unions and other professional institutions from preventing workers moving.
5. Employers should be educated to consider efficiency and not working experience, race, sex etc written for re-employment.
6. Reasonable payment should be made to those who lost their jobs, so as to be able to undertake training or searching for a new job etc becoming self-employment.

 

1. DIVISION OF LABOUR AND SPECIALIZATION

Division of Labour

Division of labour is the sharing of productive processes into small operations or tasks so that a worker performs only a single task in the production of an article. Example: In a car factory, one worker specializes in tyres and another in steeling etc.

Advantages of Division of Labour

• There is an increase of output, so firms gain.
• Specialists are employed since machineries can be used.
• Production is simplified and equipment and time is economized.
• Individuals improve on their skills and they save time.
• Workers are less tired and have more leisure time.

Disadvantages of Division of Labour

• Skills in other tasks are forgotten because the worker only has one task.
• It may lend to unemployment, if there is a fall in demand of the forms product.
• It may lead to monotony and ignorance about outer fields. Eg: A chemistry teacher may not know anything in economics or events in Cameroon since he concentrates only on chemistry.
• It may lead to over dependence on other countries and machines may replace hand labour.
• Production may become inflexible in the ever changing economy.

LIMITATIONS TO DIVISION OF LABOUR

1. The Extent of the Market

If the market is small, it would be needless to produce in large quantities hence limiting division of labour.

1. Technical Impossibility

When the processes have been reduced to a minimum, further division of labour is impossible.

1. Poor Transport Facilities

The absence of an efficient means of transport restricts the degree of division of labour and limits the scope of the market.

1. The System of Exchange

Specialization requires the use of money as a medium of exchange when the means of exchange is inadequate, it is difficult to produce in large quantity.

1. The Desire for Self-Sufficient

To overcome dependence, people tend to produce most of the things they desire. This limits division of labour.

1. Nature of the Products

Some services cannot be produced in large scale. Eg: Hairdressers, lawyers. They cannot carry their tasks in different operations and as such limits the division of labour.

1. The Size of the Labour Force and Capital Equipment of a Country

A country with a few workers and little capital equipment as the case with developing countries cannot engage in division of labour.

 

1. CAPITAL

Definition

This is a man-made resource used to produce other goods and services. The examples are machines, factor buildings, transport vehicles, raw materials etc.

Characteristics of Capital

1. The Reward to Capital is Interest

Those who offer capital for production receive income called interest.

1. Capital is a Man-made Resource

Capital is produced by human beings using other resources.

1. Capital has a Cost of Production

An amount is spent or something is forgone to produce capital.

1. Capital Can Be Separated from its Owner

This is through buying and selling.

1. Capital is not Subjected to Fatigue

It does not complain of being tired, however if over used, it gets bad or obsolete.

1. Capital is not Fixed in Supply

The supply of labour can be increased when there is an increase in demand.

There are three main types of capital;

• Working Capital (Circulating or Floating Capital)

This refers to assets which keep moving and changing their forms in the process of production. The examples are raw materials, semi-finished and finished goods, stocks. They are considered as circulating capital because they keep moving and changing as illustrated below.

 

• Fixed Capital

They are assets used in production whose form do not change in the whole production process. These assets suffer from “wear” and “tear” called depreciation or capital consumption. Example: Machines, factory, buildings, railways, vehicles etc.

• Social Capital

It refers to goods collectively or publicly owned by the people in the society. These are assets which are not directly used in production of wants. The examples are schools, health centers, public libraries, roads etc.

TERMS RELATED TO CAPITAL

1. Investment

This is the purchase or production of capital goods like machines, bridge etc. The total money value minus (-) price of all capital goods purchase produced at a given is called Gross investment.

1. Depreciation

This is the gradual damage (wear and tear) of asset or capital equipments over time as it is being used;

 gross investment-depreciation=net investment

1. Net Investment

Net investment is the residual value of capital after depreciation has been subtracted.

1. Capital Formation or Accumulation

This is the net addition to the existing stock of capital. It is the postponement of present consumption for future consumption. Capital formation takes place in two forms;

1. Saving: Keeping part of one’s income for future use.
2. Diversion: Diverting resources from the production of consumer goods to the production of more capital goods to produce both goods in future.

1. Capital Maintenance (Replacement)

This is a situation where investment within a given time is proportional (equal) to the level of depreciation within a given time

 (Gross investment=depreciation ).

CAPITAL AND WEALTH

Wealth is the stock of all goods existing at a particular time, which have money value but not all wealth is capital because not all wealth is personal wealth but not capital.

1. ENTREPRENEUR

The entrepreneur is also known as the manager, organizer, coordinator.

This is the person who manages, coordinates and supervises the other factors of production (land, labour and capital) to achieve the objectives. The reward to entrepreneur is profit.

THE FUNCTIONS OF AN ENTREPRENEUR

1. The entrepreneur raises the capital

The capital required for the operations of the business unit is raised by an entrepreneur.

2. He organizes or coordinates the other factors

He employs suitable factors and assigns specific tasks to them. He equally monitors the operation of various factors and makes adjustments when necessary.

3. He manages the business

That is, he takes the economic decisions of what to produce, how to produce, where to produce and for whom to produce.

4. The entrepreneur bears the risks

He bears the risk of raising capital for investment in a business whose success is not certain. He is responsible for any failure and incurs losses alone. He bears non-insurable risks like uncertainty, fall in demand, increase in the prices of inputs etc.

The Characteristics of the Entrepreneur

• The basic functions of the entrepreneur are common in all industries.
• The reward to an entrepreneur is profit.
• He bears risks which are not transferable or insurable.
• Entrepreneurship is a human resource.
• Cost is incurred to acquire entrepreneurial skill.

The Differences between the Entrepreneur and Labour

• In a firm, the entrepreneur is an employer while labour is an employee.
• The entrepreneur is an organizer, manager or controller of a firm while labour is the human efforts, mentally or physically used in production.
• The entrepreneur earns a reward called profit for risk bearing while labour earns wage for partaking in production.
• The entrepreneur is almost inviable skillful while labour can be skilled, semi-skilled or unskilled.

How the Entrepreneur Reduces Risks and Uncertainty?

• He can take an insurance policy for all insurable, risks. Example: accident, fire etc.
• He carries out market research.
• He engages in speculation by so doing he avoids serious losses and make profit for himself.
• He should diversify activities so that losses in one area are paid off by gains in other areas.

The Reward to the Entrepreneur

The reward or payment to the entrepreneur as factors of production is profit.

SPECIFIC AND NON-SPECIFIC FACTORS OF PRODUCTION

Specific Factors of Production

They are those factors that can be used for one and only one purpose. These factors are trained or designed to perform a specific function. Examples include; Skilled labour like pilots, surgeon, accountant, then capital like railway lines etc.

Non-Specific Factors of Production

They are those factors that can do more than one purpose or can be used for several purposes. Eg: unskilled labour like truck pushers, cleaners and capital like raw materials factory, buildings etc.