Labour Productivity

• What is labour productivity?

  The output produced per employee
• Labour productivity is a measure of business efficiency, especially for firms which have a labour-intensive production process
• Labour productivity is a measure of what?

  Efficiency
• How do you calculate labour productivity?

  Labour productivity = (Output per period)/(Number of employees in that period)
• Labour costs are usually a significant part of total costs
• If labour productivity increases, what costs decrease?

  Labour costs per unit
• What is the link between labour productivity and labour costs per unit?

  Inverse
• What are different factors influencing labour productivity?

  • Skills, ability and motivation of the workforce
  • External factors (e.g. reliability of suppliers)
  • Extent and quality of fixed assets
• Why is a lower labour cost per unit good?

  A lower labour cost per unit allows a firm to charge a lower price to gain a competitive advantage or get higher profit margins
• Why does motivation of employees influence the labour productivity of a firm?

  Employees become more engaged in their work and are more likely to put in extra effort required to achieve success
• Why does the skills and abilities of employees influence the labour productivity of a firm?

  An employee skill set creates an understanding of work duties and how to effectively perform daily job tasks. This allows the employee to perform the task quicker
• Why does the relaibility of suppliers influence the labour productivity of a firm?

  If the supply chain is interrupted and if supplies are not ready for the prodution process then the employees cannot produce as much output because of the lack of supplies
• What are the different ways of improving labour productivity?

  • Training employees to improve the skill set
  • Improve working conditions
  • Invest in capital equipment (automation)
  • Improve motivation of employees
• Why does training employees improve labour productivity?

  • Improves skills and knowledge
  • Enhances motivation
  • Reduces errors and mistakes
  • Increases confidence
• How does improving an employees' skills and knowledge by training improve labour productivity?

  The employees accquire new skills and knowledge that can help them perform their jobs more effectively. As they become more skilled, they can work more efficiently and with greater accuracy
• Why does enhancing motivation BY training employees improve labour productivity?

  Employees who recieve training are more likely to feel valued by their employers, which can increase their motivation. Employees who are given the opportunity to learn and grow are often more engaged
• If employees are given training they are more likely to feel what?

  Valued and engaged
• Why does increasing confidence by training employees improve labour productivity?


  Training can increase an employees' confience in their abilities, which can lead to a greater sense of empowerment and are more likely to take initiative and be proactive
• Why does good working conditions improve labour productivity?

  If employees feel happy and supported in their work environment, they are more likely to be engaged in their job and take pride in their work
• Why does investing in capital equipment improve labour productivity?

  If workers have increased access to machinery and tools to build goods, they can produce more goods in the same amount of time
• What are the possible difficulties of improving labour productivity?

  • Employees may demand higher pay for their improved productivity (negates impact on labour costs per unit)
  • Training may be time consuming
  • Financial methods of motivation are more effective in the short-term than the long-term so lose their effect
  • Potential for employee resistance depending on the method used (e.g. introduction of new technology)
• If employees improve their productivity they may demand higher pay which negates the impact on labour costs per unit
• Training may be time consuming and costly for a method to improve labour productivity
• Financial methods of motivation are only more effective in the short-term so lose their effect in the long-term for a method to improve labour productivity
• If there is an increase in automation that could possibly lead to employee resistance because employees could lose their jobs as a method to improve labour productivity