What is labor productivity?
Labor productivity is also called labor productivity and is
a measure of a company or industry. It measures the production time of the
economies of the countries. It is one of the crucial tools for measuring the
amount of real GDP, which is produced every hour by the typical workforce of
the country or company.
Labor productivity is measured in terms of the change in
economic output per hourly work over a specifically defined period. Labor
productivity and employee productivity are different terms and should not be
confused. Employee productivity is a measure of individual worker output.
Labor productivity is directly proportional to the
organization's output. If you increase labor productivity, you allow the
company to produce the same output with fewer workers. Therefore, the number of
workers is inversely proportional to the productivity of labor.
Labor productivity has a significant impact on economic growth
and the standard of living.
Importance of measuring labor productivity
The standard of living of people is directly related to the
productivity of work. As labor productivity increases, more and more goods and
services are produced with the same amount of work. This ensures that the
quantity of goods and products increases and is available to customers.
This is because there is an increase in production. When
human capital, technology or physical capital increases, it directly affects
labor productivity, which itself increases. Typically, the productivity that
enables growth can be attributed to one of these areas.
Therefore, if any of the three increases, labor productivity
increases. For example, if tools and equipment for the person are increased and
production increases, physical capital is directly proportional to labor
productivity. An increase in human capital or skilled labor also increases
activity.
Stable productivity may indicate an economic recovery. If,
for example, production increases while working hours remain the same, then the
labor force can be said to be more productive. On the other hand, in times of
economic recession, workers increase their work efforts because unemployment is
on the rise. Efforts are intensifying due to the looming threat of layoffs.
Calculation of labor productivity
To calculate labor productivity, you must divide total
production by the total number of hours worked.
For example, consider that the GDP of an economy is about $
100 billion and the total number of working hours is about $ 3 trillion. Labor
productivity can be calculated as
three hundred trillion divided by three trillion, or about $
33 per work hour.
If the economy's GDP reaches $ 200 trillion next year and
working hours increase to around $ 3.5 trillion, labor productivity growth
would be around 72%.
Improve labor productivity
1. Increase in physical capital
For any business, physical capital translates into
equipment, buildings, land, etc. Many companies have adopted technologies for
the benefit of the organization. New and improved machines, more space for
production and storage, faster equipment, etc. they are used to improve
production.
However, it is essential to determine if the increase in
physical capital has resulted in improvements in the efficiency and
productivity of the organization. Equally important is determining whether the
asset purchase also resulted in higher profitability.
When it comes to analyzing the adoption of enhanced and
increased physical assets, you need to determine two things. The first is
profitability and the second is technical efficiency. Profitability is the
lowest cost per unit of production that the organization aims to achieve, and
technical efficiency is the ability to produce results for given levels of
inputs.
It is essential to take advantage of the benefits of the
asset you buy so that you can justify the cost - the difference in productivity
before and after the purchase, as it must be calculated and compared. However,
as the organization grows, you can expect unit labor costs to decrease and
production to increase.
