Economics as we
have noted before has numerous applications in real life. Each of those past
posts that have dealt with economics in action in real life have tended to
theorize the practicalities on the ground through the prism of concepts in
economics. The present post too would continue to be in the series to
demonstrate how economics helps in real life
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Real Life Practice/ phenomenon
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Economics Linkage
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Extending
maternity leaves from 90 days to 180 days is counterproductive
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This
is an argument quite a number of economists and practitioners often make. When
the government of India did extend maternity leaves from 90 days to 180 days
a few years ago, social media was flooded with comments on how this could be
detrimental to the employment of women in the industry. Their reasoning was
simple. The firms are constantly endeavouring to reduce costs. If they are
faced with the prospects of paying six months of pay without work would make
them reluctant to hire women. In case if they do hire, they will create
hurdles in such a manner that women are forced to leave the job when they get
pregnant. It is not that these are assertions without foundations. Evidence
is abundant from China to South East Asia to Latin America. Many firms do
retrench or rather fire women when they get pregnant. Abuse of women for
getting pregnant is not unheard of. In fact as many firms source their goods
from these countries, many activists protested sharply at these firms for
allowing these inhuman practices to take place on the pretext of lower costs
and thus lower prices. The bad name for consumerism arises out of these
practices.
Yet there
is a different story at some other level. To firms in the technology or the knowledge sector, it
might become woke issue. The firms would perhaps want to demonstrate how
caring and sensitive they are towards women’s issues. They might more than
glad to pay those extra three months of pay for some brownie points that
might help them secure. Moreover, these are industries where physical presence
might not be required. Remote working is often encouraged. In this context,
the firms might very well encourage women to work from home after delivery. They
might bring packages where women can work for a year or so from home in lieu
of them taking only 90 days or less of maternity leave. This might actually
make more women opt for this and in some ways win-win for both.
In
reality, for those firms in manufacturing especially in the unorganized
sector, women are being fired or laid off for getting pregnant. They function
on hire and fire basis irrespective of the law and thus this would hardly be
of any relevance. They know to circumvent rules even with 90 days of
maternity leave. Therefore when the government does a cost benefit analysis,
the benefits would obviously be more relative to the costs. The technology
and the knowledge sector would perhaps market it is as a package to manifest
woke while circumventing the barriers. For the unorganized sector, it is
immaterial since they have mastered circumventing in the past too. The government
sector would be the only one where this would applicable and implemented to
the core. As such contrary to the expectations of the section of twitter
economists, this might actually not have much of an impact on recruitment of
women in the corporate world.
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Assembly
line production
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When
the earliest management theories built up the models of assembly line
production it was actually Henry Ford who put into practice. Within no time,
firms were out-competing with each other to master the practice of assembly line
production.
In the
assembly line, the product would be manufactured through a series of
processes. The first outcome thus was the modularization, yet this
modularization unlike today’s jargon was sequential. The product would thus
go through a series of sequential steps wherein some value addition was
performed leading to the final stage which led to the emergence of the
production. This was true of a car or motorbike or for that matter any
product that was of daily use.
Each
sequence or step required manpower to execute the steps or the value
addition. The manpower must be trained for this step. The logic was once the
manpower was trained in these steps, the people involved in those steps would
gain mastery. For instance, painting the car would involve people who will
understand and perform the task of painting either manual or automatic. These
people would only do this task because they are likely to become perfect with
passage of time.
In
economics, this brings us to the concept of learning curve. With passage of
time, workers become skilled in their tasks thus improving their output. The improvement
in output will increased yield thus reducing costs. If the firm aims to reduce
costs, one of the ways is to leverage the learning curve. If a person is able
to perform 5 steps in a day untrained, with passage of time and experience,
he or she are likely to perform 10 steps a day. This is nothing but an increase
in output per person to reduce average costs. Bausch and Lomb was one of the
first companies to manage and leverage this concept and reduce almost upto
20% as per some quarters in terms of reducing their costs.
Therefore,
assembly line production while improving the output of the firm was an attempt
to reduce average costs. Analogous to economies of scale and scope, this was
an attempt to leverage the economies of experience.
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As we saw in the
above examples, economics plays a significant role in explaining the day to day
life puzzles. To reiterate once again or perhaps for the nth time, the practices
have hardly any conscious linkages to the theories in economics. It is purely
subconscious and often common sense. It is the economists who seek to theorize
these. It is not wrong to theorize but on the contrary absolutely essential. Theories
are derived from practice and perhaps in some ways lead to practice. Theories in
absence of evidence from practice have little utility. In the future posts,
more examples will be discussed to contextualise economics of real life.
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