Employment Absorption Criterion
It is well-known that in the under-developed but over-populated countries, labor supply is cheap. There is large-scale unemployment or under-employment especially in the agricultural sector in the form of disguised unemployment. Hence, it is suggested such techniques should be adopted as are labor-intensive. We have discussed above the pros and cons of labor-intensive capital-intern. ice techniques. We discuss it here from the point of view of employment. Techniques with greater employment content should be preferred to others which may absorb less labor.
Besides providing more employment, such unique will raise the level of consumption because the newly -employee labor will spend their incomes on consumption. Lighter propensity to-consume will stimulate further investment which will accelerate economic growth. Also, such techniques will be conducive to a high degree of economic equality by raising the level of income of the working class people. But the defect of such techniques is that they do not necessarily maxi misc the national output. Labor-intensive techniques are not as product the capital-intensive techniques. Low labor productivity may be perpetuated. Besides, the quality of the end products suffers.
The Time Series Criterion
When several techniques are available to choose from, we may estimate real income flows resulting from each
technique. For this purpose, we apply the rate of investment with corrections due to the variability of the volume of investment arising from different spending. habits and varying import-content of investments. When we have taken two time series income
flows, we have to apply the relevant rates of time discount. The time discount is necessary because of (a) the diminishing marginal social utility of income with (he rising income level and (ill the uncertainty of the future. In the case of quickly falling marginal social utility, the higher rate of income growth may nut mean higher level of social satisfaction.satisfaction. Sink future is certain, it is necessary to have a~’valuation of uncertainty discount
This criterion some serious limitations when we consider it as a policy prescription. It is not easy to arrive at utility and uncertainty functions. A more practical method seems to be to fix the? period of time we want to consider and weigh the loss of immediate output arising form the adoption of more capital-intensive techniques against a gain in increased output later.