3.23'
KG below AC implies that the AC of labor is falling with increasing
employment; and that is an important feature of virtually all
revenue- and profit-sharing arrangement For ah increased workforce
means that labor's share in revenue (or profit) has to be divided
into a larger number of smaller parts; and although more workers
generate more revenue, they seldom generate proportionately more
revenue.
The reason is not so much the diminishing physical marginal product
of labor as more of it is combined with unchanged quantities of
other factors, as the fact that more workers produce more output,
which to sell either price has to be reduced or advertising and
its cost increased. That is the main reason for the declining
HVP of labor and, under the share system, for its declining cost.
The fact that the AC of labor declines automatically with
increasing employment despite unchanged wage scales and unchanged
revenue-sharing arrangements lends the Japanese payments system
great flexibility. Although strong unions and the competitiveness
of the labor market are likely to offset any fall in wages by
higher wage scales and/or improved revenue-sharing quotas as
soon as they come up for revision or renegotiation, there is
flexibility in the interim — and the interim can last a long
time, given the cost of change that stabilizes wage-scales and
revenue-sharing arrangements, and given also the long time it
takes (with half-yearly bonuses) for a fall in wages to become