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What is labour productivity?
Labour productivity is concerned with the volume of output (units) or value (£) produced by each employee
Why does labour productivity matter?
Labour costs are usually a significant part of total costs
Business efficiency and profitability are closely linked to the productive use of labour
In order to remain competitive, a business needs to keep its unit costs down
What are the factors influencing labour productivity?
The extent and quality of fixed assets (e.g. equipment, IT systems)
Skills, ability and motivation of the workforce
Methods of production organisation
The extent to which the workforce is trained and supported (e.g. working environment)
External factors (e.g. reliability of suppliers)
What is the labour productivity calculation?
Output in period (units)/ Number of employees at work
What ways are there to improve labour productivity?
Measure performance and set targets
Streamline production processes
Invest in capital equipment (automatisation + computerisation)
Invest in employee training
Improve working conditions
What are the potential problems when trying to increase labour productivity?
Potential ‘trade-off’ with quality- higher output must still be of the right quality
Potential for employee resistance- depending on the methods used (e.g introduction of new technology)
Employees may demand higher pay for their improved productivity (negates impact on labour costs per unit)
