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Net Returns
A number of factors, such as land and labor, are used in the production process. It is important to examine the contributions or returns to these factors so that a farmer may assess the benefits of using an additional unit of a factor when there are competing wants.
In this section, we will focus on assessing the computation of returns to labor for a technology, drawing on work from the net income or gross margin calculation. Profitability metrics can be used to assess what economists refer to as returns to factors of production (e.g., labor, capital, and management; see Engle, 2012).
How to operationalize the metric
Method of data collection and data needed to compute the method:
Data used to calculate the returns to land labor and capital are similar to those used to calculate net income. It is important to note that in cases of examining factors such as labor, data on the amount of labor used and the wage rate or value of that labor are collected.
Unit of analysis:
Net income is calculated as illustrated in Metric 1: Net Income. To calculate the net return to factors of production like labor, we use the following equation:
Net returns to labor provide an indication of how much that factor7 (labor) earns in that activity. This may assist the farmer to assess the opportunity cost of labor relative to another activity or technology.
7 Returns to capital can be calculated as