Labor...

Labor is one of the most important factors of production or production-function, apart from capital and organization… Like any firm lower cost of factors of production increases profit, other-things remaining constant. Cost of capital, often than labor, is the core of discussion-circles… but, the labor market has also a more direct link with the long-run movement of the price-level and economic-growth, as the evidences from the developed-countries show that real-wages have gown down in the past decades and interest-rate-trajectory has also shown a downward trend in the neutral rate or the natural-rate or equilibrium exchange-rate in the same period and prices have also gone down. Since, the interest-rates are often discussed; therefore here we would concentrate mainly on the labor cost of the production-function. Like lower cost of interest-rate or borrowing, lowering labor cost of production has been a crucial way to incentivize or stimulate-supply for the same lower cost of production and the same profits… Like lowering real-interest-rate by inflation, increasing inflation would also lower real-wages and cost of production, nonetheless nominal wages may also increase since the economy would try to balance in terms of demand and supply and prices and this process has a cumulative- effect on the same variables… When money supply is increased it also affects the three factors but in a magnified way and the economy goes through credit or trade cycles… During booms real wages and interest rate increase, and during busts they go down, however, the part of the government is to regulate or ride the trade-cycles through counter-cyclical monetary and fiscal policies by manipulating real wages, interest-rate and exchange rate. The price of labor or real-wage is responsible for equilibrium in the labor-market, we have heard of market-clearing prices and higher real-wages would increase labor-supply… But, the economic-models assume subsistence-wage-theory, because of better negotiation-power of the Capitalist and influence on the three rates… Capitalist try to lower the above three rates… but, higher skills increase income or real-wages… INDIA’s unemployment-rate is close to its natural-rate and the economy doesn’t need too much higher stimuli in terms for higher income, demand and supply, and economic-growth, but, it still needs to push since it has a young-population and a higher labor-force participation-rate… The rate of growth of workforce decide the natural-rate-of-–economic-growth and lose money-supply increases it and higher real-wages would improve consumption-demand and economic-growth by lowering the price-level through lower nominal and/or real-interest-rate and higher-supply… In INDIA, labor is cheap therefore it is profitable to invest in labor-intensive production when the borrowing cost is high... However, the investors might hedge them through interest-rate derivatives when the neutral-real-rate assumption is now close to 1.25%, lower than the previous target and nominal-rates are also likely to go down further… Lower borrowing cost would increase the ability to employ and increase wages… In the long-run, 5-years ahead, increase in real-wages is needed to boost demand-supply and economic-growth. The unemployment-benefits and social-security-net during slowdowns may help contain demand. They are important… Moreover, sometimes a little higher unemployment-rate is significant for lower price-level to increase real-wages and demand in case of lower population-growth rate and the economic-growth-rate…