- AS, A-Level
- AQA, Edexcel, OCR, IB
Last updated 22 Mar 2021
Labour productivity is concerned with the amount (volume) of output that is obtained from each employee.
Why does measuring and monitoring 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 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:
How can a business improve its labour productivity? Here are the main approaches:
- Measure performance and set targets – it is often claimed that "what gets measured, gets done!"
- Streamline production processes
- Invest in capital equipment (automation + computerisation)
- Invest in employee training
- Make the workplace conducive to productive effort