Full text: Price Takers' Plenty in a Model of Pure Capitalism.

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
	        

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