What Is Labor Productivity?

Labor productivity is a measure ꧋that compares economic output against the amount of labor required to produce that output.

Labor productivity is often used to calculate the amount of real gross domestic product (GDP) produced by an hour of labor. Growth in labor productivity depe🦩nds on three main factors: savings and investment in physical capital, new technology, and human capital.

Understanding Labor Productivity

Labor productivity measures economic output for a given amount of labor. Growth 🀅in labor productivity is measured by the change in economic output per unit of time over a defined period.

Labor productivity is also known as workforce productivity. However, as a macroeconomic measurement, it should not be confused with 澳洲幸运5官方开奖结果体彩网:employee productivity, which is a measure of an individual 🌸worker's output.

How to Calculate Labor Productivity

To calculate a country's labor productivity, you would divide the total output by 澳洲幸运5官方开奖结果体彩网:the total number of labor hours. 

For example, suppose the real GDP of an economy is $10 trillion and the aggregate hours of labor in the country is 300 billion. The labor productivity would be $10 trillion divided by 300 billion, equaling about $33 per labor hour. If the real GDP of the same economy grows to $20 trillion the next year and its labor hours increase to 350 billion, the economy's growth in labor productivity would be 72%.

The growth number is derived by dividing the new real GDP of $57 by the previous real GDP of $33. Growth in this labor productivity number can sometimes be interpreted as improved standards of living in the country, assuming it keeps pace with labor's share of total income.

The Importance of Measuring Labor Productivity

Labor productivity is directly linked to improved standards of living in the form of higher consumption. As an economy's labor productivity grows, it produces more goods and services for the same amount of relative work. This increase in output makes it possible to consume more of the goods and services for an increasingly reasonable price.

Physical capital includes the tools, equipment, and facilities that workers have available to use to produce goods. New technologies are methods of combining inputs to produce more output, such as assembly lines or automation. Human capital represents the increase in education and specialization of the workforce. Measuring labor productivity gives an estimate o🐼f the combin🦂ed effects of these underlying trends.

Labor productivity can also indicate short-term and cyclical changes in an economy, possibly even turnaround. If the output is increasing while labor hours remain static, it signals that the labor force has become more productive. In addition to the three traditional factors outlined above, it has been theorized that during economic recessions or periods of possible job insecurity, workers increase their labor effort when unemployment rises and the threat of lay-offs looms.

Policies to Improve Labor Productivity

💙 There are several ways that governments and companies can im🍒prove labor productivity:

• Investment in physical capital: Increasing investment in capital goods, including 澳洲幸运5官方开奖结果体彩网:infrastructure, from governments and the private sector can help productivity while lowering the cost of doing business.
• Quality of education and training: Offering opportunities for workers to upgrade their skills and offering education and training at an affordable cost can help raise the productivity of both businesses and the overall economy.
• Technological progress: Developing new technologies—including hard technology like computerization or robotics and soft technologies like new modes of organizing a business or free market reforms in government policy—can enhance worker productivity.

The Bottom Line

Labor productivity is a measure of economic output per unit of labor. Most often, labor productivity is measured in terms of real gross dom🍃estic product per hour of labor. Businesses and governmen💛ts alike aim to increase labor productivity. This can be achieved through investments in physical, technological, and human capital.