Labour productivity



Labour productivity is defined by the OECD to be "the ratio of a volume measure of output to a volume measure of input" OECD Manual: “Measuring Productivity; Measurement of Aggregate and Industry-Level Productivity Growth.” (2002) Volume measures of output are normally GDP or GVA (Gross Value Added), expressed at constant prices i.e. adjusted for inflation. The three most commonly used measures of input are: hours worked; workforce jobs; and 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, labour productivity will be higher.

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

Measurement Issues
Labour 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 worker-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, organisation, 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 organisational 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.