Question

What is labour productivity? Briefly discuss its determinants and provide one example per determinant

Answer 1

Labor productivity refers to the total amount of goods and services that a group of workers produce in a given amount of time. It measures the real economic output per labor hour and provides the hourly output of a country's economy. Thus it charts the amount of real gross domestic product (GDP) produced by an hour of labor. Growth in labor productivity depends on three main factors:

1. Saving and investment in physical capital - Physical capital is the stock of equipment and structures that are used to produce goods and services. Increasing the investment in capital goods including machines, infrastructure from governments and the private sector can help productivity while lowering the cost of doing business.Physical capital can be increased in terms of quantity and quality. Example: A demanding food outlet is having only 1 oven to bake pizza and burgers alternatively when there is demand for both. It takes more waiting time for consumers and also some returning without food by the closing time of the outlet. Now if it increases its oven from 1 to 2 or more, workers would be able to bake more pizzas and burgers simultaneously as per the demand reducing the time and catering to more consumers. The output would increase.

2. New technology - It is the innovation and advancement in technologies which enable the labors to produce more at a lesser time or produce better quality thus increasing the efficiency. Developing new technologies, including hard technology like computerization or robotics and soft technologies like new modes of organizing a business or pro-free market reforms in government policy can enhance worker productivity. Example: With the new technology of electric floor cleaning devices, labors are able to clean huge building premises within hours and switch to other work. Now along with floor cleaning, they are also able to wash utensils hence they are used for dual work than only one task of cleaning floor which earlier use to consume entire day(cleaning was done by hands)

3. Human capital - It refers of the knowledge,skills and expertise that workers acquire through education, training, and experience. Offering opportunities for workers to upgrade their skills and training help raise a corporation’s and an economy's productivity. The more skilled and experienced labor produces more efficiently with his knowledge and better understanding of the functions and processes. Example: The waiter in a restaurant chop vegetables manually.Now the person is sent to a vegetable chopping course where he learns to chop vegetables with a considerable speed. This would help him in chopping more vegetables at a reduced time increasing the productivity.