What is Labor Productivity?

Labor productivity is a ratio of output to input that can be used to measure economic growth, technical progress, and worker efficiency. It is determined by taking a measurable output, such as gross domestic product (GDP), for a nation or number of units produced in a factory and comparing it to the number of hours worked or number of workers hired to produce that output. It is possible to measure productivity for entire nations, specific industries, or individual producers of goods and services.

Several things are reflected in labor productivity numbers. The first is the amount of raw labor required to produce a given output. Once countries start tracking labor productivity, they can see if they are moving forward or not. Improvements in technology, worker skill, and other factors cause labor productivity to rise. This can also apply to individual companies. For example, if a car company finds that it takes 12 workers 12 hours to build one car and returns in six months to see that it takes 12 workers six hours, this is an improvement in productivity that indicates that progress is being made.

Labor productivity can also reveal information about standard of living. When many hours of labor are required for output, this can correspond to poor quality of life for laborers, as they spend a lot of time working. As the productivity increases and laborers achieve more output for less work, quality of life increases. Rises in labor productivity can also correspond with economic growth that increases wages and benefits, providing more improvements for workers.

When looking at productivity for an entire country, people usually use what is known as real GDP. This is a gross domestic product that is adjusted for inflation. It allows countries to make meaningful comparisons between labor productivity rates at different points in time. Without adjustment, nations experiencing inflation or deflation might have misleading labor productivity numbers.

Bureaus of labor statistics usually maintain recent data on labor productivity for people who are interested in reviewing it. These can include breakdowns by industry. Breaking down productivity by sector can provide revealing information about which industries are experiencing improvements and which are not. For individual companies, labor productivity may be discussed in periodic reports and other public releases of information. Companies are often especially proud of productivity milestones, such as halving production time, and they may tout these to shareholders and the public.