LABOR

PRODUCTI
VITY
LABOR
PRODUCTIVITY:
 Labor productivity is the value of goods and services
produced in a period of time.
 Labor productivity measures output produced per unit
of labor, usually reported as output per hour worked or
output per employed person.
 Increases in labor productivity are driven by
technological change, improvements in efficiency,
improvements in the quality of labor, and capital
deepening.
LABOR PRODUCTIVITY:
(CONTINUED)
 National Perspective: GDP per hour worked

 Relationship between Productivity and Economic

Growth
Economic growth rate = Growth rate in labor
productivity + Growth rate in total employment
 Relationship between Wages and Productivity

Growth rate in labor productivity = Rate of increase in

wages
 Key Factors:

 Technology

 Improvements in Education and Training

HOW TO CALCULATE
LABOR PRODUCTIVITY:

 Divide the total output by the total number of labor

hours. 
 Example:

 real GDP of an economy is $10 trillion

 aggregate hours of labor in the country is 300 billion

 10 trillion divided by 300 billion

 =$33 Per Labor hour

 Real GDP of same economy grows to $20 trillion

 Labor hours: 350 billion

 =$57 per labor hour

HOW TO CALCULATE LABOR
PRODUCTIVITY: (CONTINUED)

 Economy growth is 72%

 The growth number is derived by dividing the new real

GDP of $57 by the previous real GDP of $33.
 Growth: Improved standards of living in the country.
THE IMPORTANCE OF MEASURING
LABOR PRODUCTIVITY:

 Directly linked to improved standards of living in the

form of higher consumption.
 Growth in Labor Productivity:

 Physical capital (tools, equipment, and facilities)

 New technology (assembly lines or automation)

 Human capital (education and specialisation of the

workforce)
 Short-term and cyclical changes in an economy
FACTORS AFFECTING
LABOR PRODUCTIVITY

 Overtime

 Morale and Attitude

 Fatigue

 Absenteeism and Turnover

 Mobilize/Demobilize

 Start/Stop

 Reassignment of Manpower

 Logistics
FACTORS AFFECTING
LABOR PRODUCTIVITY
(CONTINUED)
 Security Check

 Hazardous Work Area

 Holidays

 Weather and Season Changes

 Tool and Equipment Shortage

 POLICIES TO IMPROVE
LABOR PRODUCTIVITY:
 Increased government and private sector investment
on infrastructure 
 Expand the size of the capital stock and reduce the
average age of capital by encouraging a higher level
of business investment 
 Tax and welfare reforms to improve work incentives 

 Improving the quality and affordability of education

and training 
 Improve access to and quality of health care 

 Facilitating inward migration of skilled labour 

 Deregulation of markets 

 Boost business start-ups and research and

innovation 
POLICIES TO IMPROVE LABOR
PRODUCTIVITY: (CONTINUED)

 Boost business start-ups and research and

innovation
 Tax breaks on the use of new technologies 

 Government measures to increase bank lending

 Encourage the uptake of the living wage or raise

the national minimum wage
 Investment in making housing more affordable
OTHER WAYS TO IMPROVE
PRODUCTIVITY:

 Examine the Operations

 Gather Employee Feedback

 Examine Available Data

 Build Better Processes

 Employee Training Programs

 Motivate the Labor Force

 Labor productivity is important and beneficial for all:

 For businesses, increased productivity brings higher

profit and opportunity for more investment.
 For workers, increased productivity can translate to
higher wages and better working conditions.
 For the government, increased productivity results in
higher tax revenues.
THANKYOU!