Efficiency/Labour Productivity

• Efficiency is measured by the inputs used to generate output. If a process becomes more efficient it uses fewer inputs to produce a given level of output and there fore unit cost should fall
• Why does labour productivity matter?


  Labour costs are usually a significant part of a firm's total costs

  In order to remain competitive, a business needs to keep its unit costs down

  It can do this my improving productivity
• How can a business improve labour productivity?

  • improve supplier relationships to avoid delays
  • improving working conditions to boost motivation
  • invest in employee training
  • invest in capital equipment
• What are the risks in improving productivity?

  • potential trade off with quality, higher output must still be of the right quality
  • employees may demand higher pay for their improved productivity, impact on labour costs per unit therefore not great
  • cost of initial investment, very expensive and time consuming to set up
  • potential for employee resistance depending on the methods used
• Unit cost formula = total costs/total output