One-Third Rule
Categories: Regulations
The amount of a birthday cake you can eat by yourself in a darkened room without officially declaring yourself as a lonely loser.
The economic version of the rule has to do with labor productivity. Productivity measures how efficiently people use labor to produce goods and services. Your company used to require 5 man hours to manufacture a single ball gag. Now it takes 4 man hours. That equates to a 20% increase in productivity.
The one-third rule provides a guideline for estimating the amount of productivity that comes about through changes in capital per hour labor. Basically, it allows economists to ballpark how increases in physical capital will boost worker productivity. The rule states that productivity will rise about one-third of the rise in capital per hour of labor (hence the rule's name). So increase the capital figure by 3%, and productivity will rise about 1%.
With this rule of thumb at their disposal, economists can also estimate how much of a change in productivity is related to other factors, such as technology upgrades. Say productivity rises 2.5% and capital per hour labor climbs 1.5%. The one-third rule states that the capital part of that equation contributed 0.5% of the increase in the productivity. Therefore, technology contributed a 2% boost to productivity.
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Econ: What is Productivity?0 Views
And finance Allah Shmoop What is productivity Oh all right
people let's just jump into this one with an example
You make delicious dog muffins not muffins made out of
dog sick people Muffins for four dogs Your dogs love
them Friends always ask you to make the muffins for
their dogs And sometimes you suspect some of your friends
are actually eating the muffins themselves Bob we're looking at
you But whatever making these muffins is you know kind
of your thing So you decide to start a dog
muffin making business you by big bags of all the
ingredients and flour sugar butter salt dog food kale cumin
liverwurst and you know a special secret ingredient You can't
tell people at first While it's just you working out
of your kitchen you can make two batches of muffins
and our orders start coming in more orders than you
can handle You need to make more muffins Teo You
know really grow the business Main problem Your mixer You
have this old tiny mixer that you got when Aunt
Sally died Trying to climb the Matterhorn Sentimental value aside
you need to upgrade the mixer If this business is
going to take off So you take some of your
profits and you buy an industrial mixer Unfortunately you can't
get elves to do things for you but we'll talk
about more about getting helpers and a bit non union
elves What you seek for now let's just upgrade your
mixer Now you could make bigger batches of dough with
no extra work which means you could make more muffins
Well you discover that with the new mixer you can
make four batches an hour and you just improved productivity
there Still just one of you though You still spend
just one hour working but you made four batches instead
of two You improved productivity by one hundred percent You
know productivity A professional obstetrician for waterfowl or a professional
actor in native ity pageants who happens to be a
duck You know Hamilton really opened up the options for
casting Well of course there's the economic concept of productivity
We suppose we should talk about that one for a
little bit Okay that leads us to the title card
here Pro activity like productivity measures how much stuff you
can make with the labour you put into it It's
sort of about how you leverage technology and or machinery
to make the efforts of mankind be worth the more
When you do something that lets you make more stuff
with the same amount of labour that's an improvement in
productivity This Khun B new technology you know like the
upgraded mixer here Or it could be a new process
like Think Henry Ford's Model T assembly line thing Need
more Alright to show you what we mean Let's step
into our time machine for a sex Hundreds of years
ago to make a shirt one person would spend months
weaving and sewing one shirt at a time Then the
Industrial Revolution happened People started to use machines to do
a lot of the work They could make hundreds of
shirts in the time it used to take them to
make one shirt This process has continued regularly over the
past couple hundred years More machines allowing fewer employees to
make more and more shirts or cars or dog muffins
or you know whatever And this process of improvement continues
today as a I R Artificial intelligence and automation improves
factories which then need fewer and fewer employees While still
making more and more cards and stuff right Maybe the
robots are preparing to take over Maybe but for now
we get all that stuff Yeah back to your muffin
growing business Your dog muffins remain a big hit Even
with the improved productivity you still get more orders than
you can handle You've got the big industrial mixer You
still have room in your oven The problem While you
just can't get work fast enough getting all the ingredients
doing the cooking sorting through the orders Well there's just
no way to make more than four batches an hour
if it's on ly you the sole proprietor doing all
this stuff Well the fix you hire a helper Well
now you just doubled your output again You collectively together
you two you're making eight batches an hour But you
didn't change the productivity of your business Instead you just
added employment or another body There's two humans working now
One two That's it So you were able to go
from four batches an hour Tow eight But productivity remain
the same The ratio one human four batches So here
let's break down the math for a minute and we'll
show you how productivity stayed Same Yep You're working one
hour And your assistant or else there is working the
same hour So total hours work too The finance world
Well these air known as man hours Or maybe it's
more PC to calm people hours or human hours It's
a measure of how much labor gets put into a
product to humans Each working one hour is too Well
just call him man hours Yeah So to get productivity
divide output by man hours and you've got eight batches
and then you've got two men ours Divide output by
the amount of hours worked and you get four batches
an hour Well your output per man hour is still
the same as it was when it was just you
You increase the output because you increase the labour you
put into it Employment went up productivity stayed the same
Your business And while it continues to expand along the
way you make improvements to increase productivity new equipment better
processes Meanwhile you also add to employment you know hiring
new workers to increase output even more And why is
this such a big thing Well if you have to
hire lots and lots of workers to put out more
product Your profit margins aren't going to go up like
when you have a machine that does the same repetitive
motion again and again and again Usually the cost of
power That machine is just the electricity or whatever in
a little bit of maintenance and cleaning And that's it
Where is when you have a human being Particularly lots
of them Well they want raises and benefits and they
unionize and then stop If you don't do everything they
want them to dio any profit margins Well then kind
of stay the same or go down It's a tough
tough slog So machinery in this sentence is your friend
and you have to love it or well you know
it won't love you back now The only thing you
need to worry about well keeping your secret ingredient a
secret Well OK two things to worry about there Someday
the very near future There might be a robot coming
for your job You know what We're betting on it 00:05:52.724 --> [endTime] Actually