Labor Part1

ACCA F2 - Management Accounting


Labor and Capital are two production constraints. Two economic theory related are:

The Capital Labor Complementary Theory: It states that increase/decrease in one input keeping other constant will result in increase/decrease in profit.

The Production Theory: If the chance of reducing costs, thereby increasing profits as well as production exists, any excess of non-necessities of labor can be eliminated.

Ethical issue in workforce management: Passage from "Economic Theory" -  Every worker has rights, it is not ethical to replace a human's work and livelihood with a machine. Is it fair to take away someone's job after they have dedicated his or her life for decades? Is it right to cut off an individual's source of income for simple increase in profits? Do workers deserve to be exploited by management? The morality of a company also has a large effect on the motivation and productivity of its employees.

In this paragraph, we revisit the topics we covered in earlier articles, which are closely related to labor. They are: Group, Team, Leadership styles, Reward, Motivation, Recruitment, Selection, Performance measurement and Communication. Management needs to focus on all these areas for effective labor management.

The use of financial indicators (ratios) to evaluate the human performance in labor-intensive sector is common. Calculation of labor variances, turnover rates, idle time, piecework and learning curve are some mathematical approaches to evaluate labor performance. Financial indicators and ratios do only give a blur picture of labor management. Evaluating human performance, we need to take account of non-financial indicators as well.

Labor is prime cost of production (goods/services) and operation for every organisation (real/virtual). Attracting, acquiring and retaining labor is key for good labor management. Present days we see many multinational organisations sifting their labor-intensive production facilities in economic zones with cheap workforce.

Unlike inventory and overhead labor management is governed by many legal rules and regulations regarding workplace safety, good working practice, minimum pay regulation, human right, employees right and many more. Voluntary adoption of best practices are always promoted. Despite all these we still hear unwanted events like "Rana Plaza Disaster in Bangladesh" where, knowingly/unknowingly organisations exploit labor unethically and illegally.

EconomicTheory