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The ratio of capital used to produce an output over a period of time.

This ratio has a tendency to be high when capital is cheap as compared to other inputs. For instance, a country with abundant natural resources can use its resourcesin lieu of capital to boost its output, hence the resulting capital output ratio is low.

Incremental capital-output ratio


The Incremental Capital-Output Ratio (ICOR), is the ratio of investment to growth which is equal to 1 divided by the marginal product of capital. The higher the ICOR, the lower the productivity of capital. The ICOR can be thought of as a measure of the inefficiency with which capital is used. In most countries the ICOR is in the neighborhood of 3. It is a topic discussed in Economic growth.

K: capital stock Y: output (GDP) I: net investment Capital-Labor Ratio


in socialist economics, an indicator that characterizes the quantity of fixed production assets in branches of material production on a per-worker basis. The ratio is obtained by dividing the book value of these assets for a given year by the number of workers employed during that year. Allowances are made in the totals for workers (and assets) employed for only part of the year. The capital-labor ratio is used in economic analysis and planning. Ratios vary from industry to industry owing to differences in production processes and in engineering and design features and prices of fixed capital stock. In 1975, the capital-labor ratio for industry as a whole in the USSR was approximately 9,000 rubles; on kolkhozes, sovkhozes, and other state agricultural enterprises, it was 6,200 rubles. Differences in the ratio are even more pronounced between the various branches of industry. In the same year, there were 3,000 rubles of capital for each worker in light industry, 22,000 rubles per worker in ferrous metallurgy, and almost 96,000 rubles per worker in the oil-extraction industry. The rise of the capital-labor ratio is an objective economic process brought about by the quantitative and qualitative growth of the means of labor. This rise, which is characteristic of all
Table 1. Growth in the capital-labor ratios in branches of the USSR national economy 1970 1975

Industry as a whole ............... Electric power generation ............... Fuel production ............... Ferrous metallurgy ...............

134 158 156 140

190 214 243 196

Table 1. Growth in the capital-labor ratios in branches of the USSR national economy 1970 1975

Machine building and metalworking ............... Light industry ............... Food processing ............... Agriculture ...............

130 138 133 156

183 198 191 265

branches of material production, reflects increases in the level of technology and the ever greater substitution of machines for human labor. The growth of the capital-labor ratio has been especially rapid within the context of the scientific and technological revolution, when new types of equipment with higher unit capacities and production techniques promoting further automation have been introduced on a broad scale. Between 1965 and 1975, for example, the number of mechanized production lines in USSR industry increased by a factor of 2.7, and the number of automatic lines increased by a factor of 2.9; the number of totally mechanized and automated plant shops and production processes tripled, and the number of fully automated enterprises increased by a factor of 2.8. Many types of operations that were previously performed manually, particularly in the extractive industry, have been virtually or totally mechanized. The most rapid increase in the capital-labor ratio has been seen in agriculture, where a large-scale acquisition of new equipment has made possible increased production with a smaller work force. The rise in the capital-labor ratio stems not only from the rapid and thoroughgoing introduction of systems for the mechanization and automation of basic production operations. Also important is the application of technology to the control of production processes. A rise in the capital-labor ratio increases the productivity of labor, makes production more profitable, reduces unit costs, and improves product quality. The growth in capital-labor ratios in the USSR national economy from 1970 to 1975 is illustrated by the data in Table 1 (in percent; 1965 = 100 percent). Economic gains are maximized when labor productivity grows faster than the capital-labor ratio. In such a case, the rise of the capital-labor ratio is accompanied by an increase in capital productivity. L. E. BABASHKIN