labour productivity

• What is Labour Productivity and Why Does it Matter?

  Labour productivity measures the amount or value of output per employee. Labour productivity is an important concept for many businesses because:

  • Labour costs are usually a significant part of total costs (particularly for labour intensive industries)

  • Business efficiency and profitability are closely linked to productive use of labour

  • In order to remain competitive, a business needs to keep its unit costs down
• Key Factors Influencing Labour Productivity

  • Extent and quality of fixed assets

  • Skills, ability and motivation of the workforce

  • Methods of production organisation

  • Extent to which the workforce is trained and supported

  • External factors
• Calculating Labour Productivity


  output per period / no. employees at work
• Ways a Business Can Improve Labour Productivity

  • Measure performance and set targets

  • Streamline production processes

  • Invest in capital equipment (automation + computerisation)

  • Invest in employee training

  • Improve working conditions
• Potential Issues With Trying to Improve Labour Productivity

  • Potential “trade-off” with quality – higher output must still be of the right quality

  • Potential for employee resistance – depending on the methods used (e.g. introduction of new technology)

  • Employees may demand higher pay for their improved productivity (negates impact on labour costs per unit)