Technical Progress, Economic Growth, and Factor Remuneration

Technical Progress and Economic Growth

Economic growth can raise the general standard of living as national income increases at a higher rate than the population. While limited growth can be achieved in the short, medium, and long term with minimal technical progress, technical progress is the primary driver of long-term growth. Technical progress is based on:

• The development of new production and communication techniques based on specific changes in equipment technologies.
• Increased factor productivity (e.g., improved healthcare).
• The development of new products, leading to the emergence of new companies.

Remuneration of Productive Factors

Markets for factors of production: By setting the price of factors, the market contributes to resolving two key issues:

• For whom are goods and services produced?
• How are goods and services produced?

Prices of production factors: The remuneration of a factor depends on its supply and demand:

• When demand exceeds supply, wages rise.
• When supply exceeds demand, wages tend to decline.
• The equilibrium wage is the point where supply and demand are equal.

The demand for factors has two characteristics:

• It is a derived demand.
• It is a joint application.

State Intervention in the Economy

When the state intervenes in the economy, it can do so for political, social, or economic purposes. The objectives are:

• Short term: Price stability, full employment, balance of foreign trade.
• Long term: Improvement in income distribution, economic growth, and development.

Economies display cycles with the following stages:

• Boom
• Recession
• Depression
• Recovery

Salary and the Labor Market

Salary: This is the total income received by workers for providing their labor services. It depends on supply and demand:

• The demand for labor is the number of people companies are willing to hire.
• The labor supply is the number of people willing to work for a given salary level.

Besides wages, demand and labor supply are influenced by other constraints:

• Demand is conditioned by the productivity of labor.
• Supply is conditioned by the number of people who can work, depending on population size and activity rate.

The labor market is not perfect, and its main shortcomings are:

• The negotiating power of unions.
• The heterogeneity of labor, as workers differ in ability and age.
• It's not a transparent market.
• Labor is not a perfectly mobile factor.