Workforce productivity

Labour productivity USA, Japan, FRG

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Main article: Productivity

For historical role of technology in increasing productivity, see: Productivity improving technologies (historical).

Workforce productivity is the amount of goods and services that a worker produces in a given amount of time. It is one of several types of productivity that economists measure. Workforce productivity can be measured for a firm, a process, an industry, or a country. It was originally (and often still is) called labor productivity because it was originally studied only with respect to the work of laborers as opposed to managers or professionals.

The OECD defines it as "the ratio of a volume measure of output to a volume measure of input". Volume measures of output are normally gross domestic product (GDP) or gross value added (GVA), expressed at constant prices i.e. adjusted for inflation. The three most commonly used measures of input are:

1. hours worked;
2. workforce jobs; and
3. number of people in employment.

Measured labour productivity will vary as a function of both other input factors and the efficiency with which the factors of production are used (total factor productivity). So two firms or countries may have equal total factor productivity (productive technologies) but because one has more capital to use, labor productivity will be higher.

Output per worker corresponds to the "average product of labour" and can be contrasted with the marginal product of labor, which refers to the increase in output that results from a corresponding (marginal) increase in labor input.

Measurement issues

Worker productivity can be measured in physical terms or in price terms.

Whilst the output produced is generally measurable in the private sector, it may be difficult to measure in the public sector or in NGOs. The input may be more difficult to measure in an unbiased way as soon as we move away from the idea of homogeneous labour ("per worker" or "per standard labour hour"):

• the intensity of labour-effort, and the quality of labour effort generally.
• the creative activity involved in producing technical innovations.
• the relative efficiency gains resulting from different systems of management, organization, co-ordination or engineering.
• the productive effects of some forms of labour on other forms of labour.

These aspects of productivity refer to the qualitative, rather than quantitative, dimensions of labour input. If you think that one firm/country is using labour much more intensely, you might not want to say this is due to greater labour productivity, since the output per labour-effort may be the same. This insight becomes particularly important when a large part of what is produced in an economy consists of services. Management may be very preoccupied with the productivity of employees, but the productivity gains of management itself might be very difficult to prove. Modern management literature emphasizes the important effect of the overall work culture or organizational culture that an enterprise has. But again the specific effects of any particular culture on productivity may be unprovable.

In macroeconomic terms, controlling for hours worked (i.e. expressing labour productivity as per worker-hour) should result in readily comparable productivity statistics, but this is often not done since the reliability of data on working hours is often poor. For example, the US and UK have much longer working hours than Continental Europe--this will inflate the figures on productivity in these countries if it is not accounted for. When comparing labour productivity statistics across countries, the problem of exchange rates must be considered because differences in how output is accounted for in different countries will change labour productivity statistics, quite apart from the obvious issues surrounding converting different currency units to a standard base.

The validity of international comparisons of labour productivity can be limited by a number of measurement issues. The comparability of output measures can be negatively affected by the use of different valuations, which define the inclusion of taxes, margins, and costs, or different deflation indexes, which turn current output into constant output. Labor input can be biased by different methods used to estimate average hours or different methodologies used to estimate employed persons. In addition, for level comparisons of labor productivity, output needs to be converted into a common currency. The preferred conversion factors are PPPs, but their accuracy can be negatively influenced by the limited representativeness of the goods and services compared and different aggregation methods. To facilitate international comparisons of labor productivity, a number of organizations, such as the OECD, the Groningen Growth Centre, International Labor Comparisons Program, and The Conference Board, prepare productivity specifically to enhance the data’s international comparability.

Factors affecting labour productivity

In a survey of manufacturing growth and performance in Britain, it was found that:

“The factors affecting labour productivity or the performance of individual work roles are of broadly the same type as those that affect the performance of manufacturing firms as a whole. They include: (1) physical-organic, location, and technological factors; (2) cultural belief-value and individual attitudinal, motivational and behavioural factors; (3) international influences – e.g. levels of innovativeness and efficiency on the part of the owners and managers of inward investing foreign companies; (4) managerial-organizational and wider economic and political-legal environments; (5) levels of flexibility in internal labour markets and the organization of work activities – e.g. the presence or absence of traditional craft demarcation lines and barriers to occupational entry; and (6) individual rewards and payment systems, and the effectiveness of personnel managers and others in recruiting, training, communicating with, and performance-motivating employees on the basis of pay and other incentives. The emergence of computers has been noted as a significant factor in increasing labor productivity in the late 1990s, by some, and as an insignificant factor by others, such as R.J. Gordon. Although computers have existed for most of the 20th century, some economic researchers have noted a lag in productivity growth caused by computers that didn't come until the late 1990s.”[1]

External links

• Figures for the US from BLS