Labour productivity is concerned with the amount (volume) of output that is obtained from each employee. It is a key measure of business efficiency, particularly for firms in which the production process is labour-intensive.

Why does labour productivity matter?

• Labour costs are usually a significant part of total costs
• Business efficiency and profitability closely linked to productive use of labour
• In order to remain competitive, a business needs to keep its unit costs down

Achieving high (or higher) labour productivity is not a simple task. Several factors influence how productive the workforce is: e.g.

• Extent and quality of fixed assets (e.g. equipment, IT systems)
• Skills, ability and motivation of the workforce
• Methods of production organisation
• External factors (e.g. reliability of suppliers)

How can labour productivity be measured? The common formula is as follows:

An example of this calculation is provided below: