Ministry of Education and Science of Ukraine

Sumy State University

Department of Economics and Business Administration

Individual mandatory homework (control work)

On Labor Economics
Topic: Factors and reserves of labor productivity growth

Student Viktoriia Radko

Group AБ-71-8а
Teacher I. M. Sotnyk

Sumy, SSU, 2019

 Contents
Introduction...............................................................................................................3
1. Factors and reserves of labor productivity growth..............................................4
1.1 Factors of labor productivity growth............................................................4
1.2 Reserves of labor productivity growth..........................................................6
2. Indicators and methods of measuring labor productivity..................................10
3. Measures on the growth of labor productivity at enterprises............................14
4. Analysis of labor productivity of the staff of the enterprise "АВС"...............17
Conclusions.............................................................................................................19
References...............................................................................................................20
 Introduction

Labor productivity is the rate of output per worker in your business per unit
of time - usually per hour. Basically, productivity is how much each worker
produces per hour compared to what each worker is earning to perform the job.
Comparing your company's labor productivity rate with an established standard or
expected rate of output can help you determine where your company is operating
in terms of your competition and the market as a whole.
Determining company's productivity of labor can help a business find drags
on the revenue stream and improve profits. A low productivity of labor when
compared with employees' hourly rates may signal the employer is paying workers
too much or you have too many employees on the job at any one time.
Increasing labor productivity involves more than simply paying workers less
and producing greater product quantities. As a business owner, you can increase
labor productivity by providing employees with better equipment and technology
to more efficiently complete tasks and produce better products. This requires a
greater short-term expenditure of capital from your business in the name of
securing long-term gains in productivity. Investing the money in your business to
improve facilities also shows workers your commitment to the company, which
can improve worker morale and lead to increases in overall productivity [1].
The main purpose of mandatory work - an analysis of labor productivity at
the enterprise and the identification of reserves for its growth.
To achieve this goal, we should decide following tasks:
1. To define the concept and essence of labor productivity.
2. Bring indicators and methods for calculating labor productivity.
3. To list factors of growth of labor productivity at the enterprise.
4. Carry out an analysis of labor productivity and labor intensity of
products.

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 1. Factors and reserves of labor productivity growth

1.1 Factors of labor productivity growth

Under the factors of growth of labor productivity understand the driving

forces, sources, as a result of which the movement changes the level of
productivity. Factors of productivity are very diverse and multi-faceted, therefore,
different groups are used at the macro-and micro-level for the purposes of
forecasting and planning of productivity growth, as well as their system
perception.
Factors are the forces, causes, external circumstances that affect any process
or phenomenon [2].
Depending on the degree and nature of the impact on the level of
productivity, factors can be grouped into three groups:
 material and technical;
 organizational and economical;
 social and psychological (Fig. 1.1).

Factors of labor productivity

material and technical Organizational and economical

Social and psychological

Fig. 1.1 - Classification of factors of productivity growth

Material and technical factors are associated with the development of the
productive forces of society: the means of production and labor, as well as
improvement of their combination. Leading material and technical factors in favor

4
of scientific and technological progress constitute a potential basis for labor
productivity increasing. Scientific and technological progress leads to changes in
applicable means and objects of labor, in production technology such as replacing
manual labor by machine. The merger of technology and science in single process
marks the transformation of science into a direct productive force, which results in
increasing the efficiency of the production depending on the use of research.
The main material and technical factors of labor productivity are:
– mechanization and automation of production;
– implementation of new technologies;
– improvement of technical processes;
– improvement of materials, energy use;
– implementation of new more effective materials, fuel, energy [3].
Organizational and economical factors together with material and technical
ones play a significant role in reaching maximal effect from implementation of
new technologies and improving of technical processes.
These factors are:
– improvement of organizational forms of public production (enhancement
of specialization and concentration);
– improvement of labor organization (enhancement of labor division and
cooperation);
– implementation of new labor methods and techniques;
– improvement of work quota setting, implementation of new forms of labor
remuneration and stimulation;
– improvement of production management (improvement of organizational
structures of production, management, planning, etc.), etc [3].
In a market economy social and psychological factors and conditions for
labor productivity growth are generated by the new system of industrial relations,
which are based on private ownership of the means of production. Such conditions
are increase in educational, cultural and technical level of employees.
So, the most important social and psychological factors include:
5
 − the cultural and technical level of workers;
− quality of training specialists with higher and secondary education;
− business skills improving;
− living standards growth;
− creative attitude to work, etc [3].
The level of labor productivity is also affected by the degree of
extensiveness and intensity of labor.
Extensive work reflects the degree of use of working time during a work
shift with the invariability of other characteristics. The higher the extensive work
(the more fully used the working time and the longer the working shift), the higher
the productivity of labor. Extensive work has the limits set by law - the duration of
the working day and working week.
The intensity of labor characterizes the degree of its tension in the unit of
working time and is measured by the amount of energy spent by the employee
during this time. This characteristic of labor also has boundaries due to
psychophysiological abilities of man. Therefore, despite the importance of this
characteristic for increasing labor productivity, it is necessary to strive for the
establishment of normal labor intensity and to ensure its increase through the
achievements of the NTP, the use of modern technologies in the organization of
the trade process, high-performance equipment, which together can and should
increase the level of labor productivity of workers on all levels of the trade
industry [2].

1.2 Reserves of labor productivity growth

Factors that affect performance works, determine only the directions and
areas of it growth or decrease. Increase productivity of work can become reality
only as a result of a focused one search and use of growth reserves labor
productivity.

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 Reserves for productivity growth are possibilities for fuller use of productive
the forces of labor, all the factors that increase it efficiency through the
improvement of technology, technology, improvement organization of production,
labor and management. Reserves are closely linked to factors productivity growth.
If one or the other factor is considered as the possibility of using the associated
reserve is a conversion process opportunities in reality [4].
Reserves for the growth of labor productivity are divided into two large
groups:
 reserves improving the use of live labor (workforce);
 reserves more efficient use of fixed assets and working capital.
To the first groups include all reserves related to the organization, working
conditions, increasing the capacity of employees, structure and placement of
personnel, creation organizational conditions for uninterrupted work, and also with
provision enough high material and moral interest of employees in the results of
work.
The second group includes reserves for better use of fixed assets (machines,
mechanisms, equipment, etc.) both in terms of power and time, as well as reserves
more economical and fuller use of raw materials, materials, components,
fuel, energy and other circulating assets [4].
According to the features of their use, reserves are divided into reserves
stock and loss reserves. For example, incomplete use of equipment by
power or variable work, studied but not yet implemented advanced methods
labor (stock reserves, loss of working time, shortage, over fuel) are included
to loss provisions.
The notion of reserves includes also:
 the production losses of working time - are internally-variable
and round the-clock idle time, absenteeism and all are not foreseen by the
plan non-appearance;

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  unproductive labor costs - excess labor costs (in compared to
planned ones) that occur as a result of inefficient use guns and objects of
work, violations of the established technological process [4].
By the time reserves can be divided into:
 current;
 prospective.
Current reserves can be used in a year (quarter, month) mainly due to
technical measures without serious technical modernization of production, radical
restructuring process and big investments. Prospective reserves of labor
productivity growth are associated with radical changes in production technology,
organizational innovations, and take time more than one year and serious
investments for their implementation [3].
The spheres of origin are distinguished by:
 national;
 regional;
 inter-branch;
 sectoral;
 intra-industrial reserves.
The national reserves include such reserves which affect the growth of
labor productivity in the economy as a whole and which are related to the
underutilization of scientific and technological progress, the inappropriate location
of enterprises and the ineffective demographic and territorial occupation of the
population, the inadequate use of market mechanisms and management methods,
etc.
Regional reserves relate to the opportunities for improved use of
productive forces in the region.
Intersectoral reserves are opportunities for improving inter-branch
relationships, timely, accurate and qualitative implementation of contracts for
cooperative supply, the use of opportunities for one industry to increase

8
productivity in another. Thus, a significant increase in labor productivity in
manufacturing industries contributes to improving the quality of products in the
raw materials industries.
Sectoral reserves are the reserves related to the opportunities for increasing
productivity that are characteristic of the economy and are due to insufficient use
of technology and technology for the production of progressive achievements and
best practices, disadvantages in specialization, concentration and combination of
production, etc.
Intra-industrial reserves are manifested and realized directly at the
enterprise. The great importance of these reserves lies in the fact that the company
is the primary focus of the economy and it identifies and uses all the previous
reserves. Intra-industrial reserves are caused by insufficiently effective use of
machinery, raw materials, materials, as well as working time, the presence of
round-the-clock and intrusive time losses, as well as hidden unemployment [5].

9
 2. Indicators and methods of measuring labor productivity

Methods of measuring labor productivity depend on the method of

determining the volumes of manufactured products. Distinguish the natural, labor
and cost (monetary) methods.
The essence of the natural method is that the volume of output and
productivity are calculated in physical units (pieces, tons, meters).
  This method is widely used in the enterprise: at workplaces, in brigades, in
separate sections of those industries that produce homogeneous products
(electricity, mining industries).
  If an enterprise (shop, district, brigade) produces products that have the
same purpose, however, it is distinguished by one single sign, the output can be
calculated using conditional units.
  The labor method is most often used at workplaces, in brigades, at
production sites and in workshops, where the volume of manufactured products or
work is determined in normal hours, after which it is attributed to the actual time
worked.
  In modern conditions, the universal method of measuring labor
productivity is cost (money), which is based on the use of cost indicators of output
(gross, commodity production, standard cost of processing, net, normative-net and
conditional-net products, gross income) [6].
There are too many indicators and methods of labor productivity
measurement due to different specific production characters, used technology, raw
materials and purposes of investigations.
The main requirements to labor productivity measurement methods are:
– correspondence of unit and purposes of measurement; – measurement
fullness and correspondence between measured and actual production volumes;
– unity of labor productivity measurement methods: labor productivity
indicator must be transparent, comparable, flexible, aggregative and universal;

10
 – opportunity for collected data to use not only for measurement of labor
productivity, but also for planning, analysis of labor productivity factors [7].
Labor productivity measurement is carried out by comparison of labor
results with labor costs. According to the direct or inverse ratio of these values we
will have 2 indicators: labor productivity (or labor output) and labor intensiveness
[3].
Labor productivity or labor output is the amount of goods and services that a
worker produces in a given period of time. Labor productivity (Lp) is defined as a
ratio of the amount of produced goods (Q) and labor costs (or worker (R)), which
are spent on these goods production (T):
Q
Lp = T (2.1)

The more value of this indicator, the higher is labor productivity. Because of
this fact the indicator is called as direct indicator of labor productivity. The inverse
indicator of labor productivity is labor intensiveness (Li), which is calculated as:
T
Li = Q (2.2)

Labor method includes use of labor intensiveness indicator, which is

presented by all labor costs of enterprise personnel.
According to the content of labor costs there are different types of labor
intensiveness, such as:
– technological;
– labor intensiveness of production maintenance;
– production; – labor intensiveness of production management;
– total.
Technological labor intensiveness (Lit) is calculated as labor costs of core
workers, which make technological changes in labor objects:
Lit = Tp + Tt , (2.3)
where Tp – labor costs of core piece-workers;
Tt – labor costs of core time workers.

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 Labor intensiveness of production maintenance (Lipm) is calculated as labor
costs of indirect workers of producing departments (T pd), core and all other
workers of secondary (Tsd) and service departments (Tserd):
Lipm = Tpd + Tsd + Tserd . (2.4)
Production labor intensiveness (Lip) is calculated as labor costs of all
workers of producing, secondary and service departments:
Lip = Lit + Lipm . (2.5)
Labor intensiveness of production management (Lipman) is labor costs of
management personnel and security service. Total labor intensiveness (L itot)
includes labor costs of all categories of enterprise personnel and calculated as:
Litot = Lit + Lipm + Lipman = Lip + Lipman . (2.6)
According to the character and purpose of labor costs there is normative,
factual and planned labor intensiveness. Normative labor intensiveness is
normative labor costs on certain production volume producing. These labor costs
are defined by time and productivity norms, planned production resource, etc.
Factual labor intensiveness is factual labor costs on certain production volume
producing. It is differed from planned labor intensiveness by working time losses,
incomplete use of equipment capacity, etc [3].
According to the calculation volumes there is labor intensiveness of
operation, detail, product, commodity and gross output. According to the labor use
place there is production, shop, area, team and working place labor intensiveness.
Effective work of the enterprise is based on temporary increasing of labor
productivity and labor intensiveness reducing. In order to control these processes
there are used indices of labor productivity and labor intensiveness, indicators of
their growth rate and average annual growth rate. Index method of labor
productivity calculation is presented by formula:
I I
L p=
IQ IQ
= ,
IT IR
L p=
1
IL
(2.7)
i

where I L – labor productivity (labor output) index;

p

IQ - index of produced goods volume change,

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 IT – index of change of labor costs, which are spent on goods production Q,
IR – employees number index,
ILi – labor intensiveness index.
To calculate the average annual labor productivity index we use formula:
n
I Lpav =
√∏
n

i=1
I Lpav , (2.8)

where ILpav – average annual labor productivity index;

ILpi – labor productivity index in the і-th period of time;
n – number of time periods [3].
The growth of labor productivity is calculated:
L pp . p .−L
∆ Lp= pb .p .
∙ 100 %, (2.9)
Lpb . p .

where L pp . p .−¿ labor productivity of plan period;

L pb . p . −labor productivity of basic period .

In the broadest sense, the growth of labor productivity means continuous

improvement of people's economic activity, the constant finding of the opportunity
to work better, to produce more qualitative goods at the same or lower labor costs.
The growth of labor productivity provides an increase in the real product and
income, and therefore it is an important indicator of the country's economic
growth. As the increase in the social product per capita means raising the level of
consumption, and hence the standard of living, economic growth becomes one of
the main objectives of the states with a market economy system.

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 3. Measures on the growth of labor productivity at enterprises

Managing productivity at enterprises is a process that involves strategic and

operational planning and continuous monitoring of effective implementation.
Regarding the organizational factors of productivity growth at enterprises,
we propose such measures.
1) Improvement of the organizational structure of management.
Since the number of management personnel has a retroactive effect on labor
productivity, we propose to optimize the organizational structure of management.
If the company uses a linear functional management structure and quickly
implements managerial decisions, it can lead to a high degree of specialization in
improving the efficiency of the functional services.
2) Improvement of training and advanced training of personnel.
The number of employees at an enterprise with a higher education has a
direct impact on labor productivity. For this reason, it is worth using the following
forms of professional development: professional retraining (development of
knowledge and skills in accordance with environmental changes); advanced
training (updating of knowledge in accordance with changes in solving new
production tasks, provided through problem-oriented seminars, training courses,
master classes, trainings); operational updating of knowledge on informal
channels (conferences, seminars, meetings, focus groups, contests, international
exhibitions) [8].
3) Personnel turnover management.
It is advisable to plan measures to reduce staff turnover at the enterprise:
improving the systems of material and non-material incentives, improving the
procedures for the admission and dismissal of employees, career management
systems, formation of responsible employees attitude to work, conscious
discipline, culture of behavior, improvement of relationships in a team.
In enterprises where there is a very large staff turnover, the desire to move
from one enterprise to another is inversely proportional to age. The peak of
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transitions ends in 24-25 years. Workers with lower qualifications who have no
prospects, less-paid families, and far from their place of work are more likely to
change their jobs.
In our opinion, it is worthwhile to find out the turnover of personnel at the
enterprise using questionnaires. The following questions should be included in
such a questionnaire: reasons for dismissal (wages, burdens, injustices,
relationships in a team, attitude of management, schedule of work, tension, family
circumstances, frequent business trips, inability to raise a career, etc.); determining
the possibility of transferring an employee to another department. And this will
give an opportunity to timely take measures to stabilize the personnel.
4) Increase the effective working time fund.
So, in order to improve the use of working time, we offer:
- to encourage staff to work, both materially and morally;
- improve working conditions, introduce physiologically sound modes of
work and rest;
- reduce the number of employees;
- eliminate unproductive payments from the wage fund.
Reserves for increasing labor productivity at the expense of better use of
working time differ from the reserves of reducing the complexity of the fact that
they take place only with poor organization of labor and production, weak
discipline of labor, poor conditions and labor protection and disappear with the
elimination of these shortcomings [8].
To identify the reserves of labor productivity growth by eliminating the
losses of working time it is necessary to analyze the actual balance of working time
on average per worker, compare it with the plan, thereby establishing which
balance sheet items there is a deviation. In addition, it is necessary to compare the
dynamics of time, day, and yearly production of workers, which will allow us to
conclude on changes in the use of working time in the reporting period. With the
help of photographs and timekeeping of the working day and accounting
documentation, it is necessary to identify in-house losses of working time, to
15
establish their causes and to develop measures for their reduction or complete
elimination. Reducing the loss of working time allows you to increase the budget
of working time and release a certain number of workers. Consequently, an
increase in labor productivity can be achieved by: increasing output through more
extensive use of production capacity of the enterprise; reducing labor costs for its
production by intensifying production, introducing integrated mechanization and
automation of production, advanced machinery and production technology,
reducing labor time losses through better organization of production, logistics and
other factors in accordance with the plan of organizational, technical and
innovative measures [8].

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 4. Analysis of labor productivity of the staff of the enterprise "АВС"

The production per worker the enterprise "АВС" last year was 7,000 hryvnias.
Production volume according to the plan for the year - 18 million UAH. Due to the
increase of the technical level of production is released - 250 people. As a result of
improvement of management and organization of production, 60 people are
released. Changes in the volume and structure of production require an additional
number of 130 people.
1) Determine the growth of labor productivity in the planned year;
2) calculate the change in labor productivity over 5 years and the average
annual rate of its change, if production volume increased by 25 % and the number
of workers in material production – by 6,8 %;
3) calculate the change in labor productivity by combination of all factors, if:
due to the material and technical factors, labor intensiveness decreased by 6 %,
introduction of measures of labor scientific organization provided an increase in
number of working days in the current year from 227 to 230, and in shift duration
from 7.5 to 7.9 hours, due to other factors, labor productivity increased by 1.2 %.
Solution
1) The number of workers in the previous year is determined:
Q Lp
Lp = R → R=
Q
18000000
Rb . p .= =2571 ( worker ) ;
7000
The number of workers according to the plan is determined:
R p . p. =2571−( 250+60−130 )=2391(worker );

The productivity per one working according to the plan is calculated:

18000000 UAN
Lp = 2391
=7528.2
worwer
; ( )
The growth of labor productivity is:
L pp . p .−L
∆ Lp= pb .p .
∙ 100 % .
Lpb . p .
17
 7528.2−7000
∆ Lp= ∙100 %=7.55 % .
7000
2) Labor productivity change in 5 years:
I 1.25
L p= =1.17 .
1.068

∆ L p = 17%.

The average annual rate of labor productivity change:

I Lpav =√5 1.17=1.0318.
∆ Lpav=+3.18 % .
3) Labor productivity by combination of all factors:
∆ L1 ∙ 100 % 6 ∙ 100 %
∆ L p 1=± = =+6 % .
100−∆ L1 100−6

∆ L p 2= ( 230
227
−1 ) ∙ 100 %=+1.32% .

7.5
=(
7.9 )
∆ Lp3 −1 ∙ 100 %=+ 5.06 % .

∆ L p 4 =1.2 % .
∆ L psum =6+1.32+5.06+1.2=13.58 % .

After conducting this analysis, we can draw a conclusion on the three points
of the calculations.
1) Due to the increase in technological level, the number of workers of the
enterprise "АВС" has decreased, but due to this labor productivity increased in the
planned period by 7.55%.
2) We calculated the average level of productivity growth of this enterprise
in 5 years. With the help of calculations, we found that average labor productivity
for 5 years increased by 3.18%.
3) We also calculated the influence of factors such as: increasing the
working day, increasing the number of working days, and material and technical
factors on productivity. We can do the conclusion that with the combination of all
these factors, labor productivity will increase by 13.58%.

18
 Conclusions
Increasing labor productivity is a major factor in overcoming the economic
downturn, ensuring sustainable and strong growth and raising the standard of
living of the population.
In Ukraine, in terms of increasing labor productivity and the economy as a
whole, there are a number of untapped reserves and opportunities: a significant
expansion the number of product; increase in specific gravity the final product;
conducting of active technical re-equipment and reconstruction of enterprises;
application of advanced technologies; use of modern equipment.
Growth factors for labor productivity are those driving forces or causes,
under the progress, improvement of production organization, management of labor,
etc. The variety of concrete ways and means to achieve higher productivity leads to
the need to develop a classification of factors of productivity growth. The effect of
factors of productivity growth depends on the natural, social, environmental and
material conditions in which they are manifested and are realized.
Only effective development of the economy, solving the whole complex
related problems will achieve the optimal level of economic performance laws,
will provide an increase in the level of productivity [9].

19
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https://opentextbc.ca/principlesofeconomics/chapter/20-2-labor-
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