The concept of labour productivity

What is productivity?

Productivity refers to the efficiency with which an economy employs resources to produce economic output.

What is labour productivity?

The total volume of output (real GDP) produced per unit of labour (measured in terms of either the number of workers or the number of hours worked) during a given time period.

Labour productivity formula

Real GDP/quantity of labour input

or

Real GDP per worker

or

Real GDP per hour worked

How does higher productivity affect firms, workers, households and living standards?

It will result in a higher profit for firms, higher wages for workers, higher consumption for households and higher living standards across the economy.

What are the two key factors of economic growth?

Growth in the labour force

Growth in labour productivity

What determines growth in the labour force?

Growth in population from natural increase

Growth in net migration

Growth in the participation rate of the workforce

What can higher productivity lead to?

Lower unit costs

Improved international competitiveness and trade performance

Higher profits

Higher wages

Greater tax revenue for the government