Business

Study Notes

Labour Productivity

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.

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