What is labour productivity?

• Labour productivity is concerned with the volume of output (units) or value (£) produced by each employee

Why labour productivity matters:

• 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

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)

Calculating labour productivity:

Output in period (units)/Number of employees at work

Ways 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

Some 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)