Recent labor relations controversies and ongoing arguments about the minimum wage have raised questions as to how a supply chain should share the utility it produces.

If we ask the wrong question, however, we’ll get the wrong answer. “What is a fair share?” asks how a supply chain should divide a finite pie between its suppliers, workers, investors, and customers. “What is the optimum share?” asks how the outputs should be allocated to maximize the size of the pie so all can have more.

The Cobb-Douglas production function seeks to quantify the contributions of capital and labor to total productivity and output, which provides at least some basis for an optimum allocation. One of its key inputs is total factor productivity (TFP), which deserves far more attention than it now receives. Ever-increasing TFP is why all but the poorest Americans are more affluent than most people around the world.

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