A note on the mechanism of substitution of labour with capital in the production processes

Pokrovskii, Vladimir (2025): A note on the mechanism of substitution of labour with capital in the production processes.

Abstract

The theory of substitution is based on the assumption that not the quantity of capital (production equipment) does substitute labor, but rather its ability to substitute workers' efforts through equipment's operation. This is the true content of the substitution of labor by capital. To formulate a correct mechanism of substitution requires considering three factors of production: the amount of production equipment (capital K), human activity (labor L), and the substitutive capacity of equipment (substitutive work P). The technological properties of production equipment are characterized by the technological coefficients, indicating the amount of labor and energy required to operate a unit of equipment. The production function can assume various forms, none of which coincide with the popular Cobb-Douglas expression, which seems to be erroneous in its core.

• Item Type: MPRA Paper
• Language: English
• Keywords: capital, labor, technological coefficients, production function
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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