Productivity measures how efficiently a business turns inputs into outputs. The most common measure is labour productivity: how much each worker produces in a given time.
Measuring productivity
Labour productivity is calculated as:
Labour productivity = total output ÷ number of workers
For example, if 5 workers produce 300 loaves in a day, productivity is 300 ÷ 5 = 60 loaves per worker per day. The higher the figure, the more efficient the workforce. Productivity can also be measured over an hour, a shift or a year, provided the same period is used for both output and workers so the comparison stays fair.
Why productivity matters for costs
- If workers produce more units, the labour cost spread over each unit falls.
- This reduces the average cost per unit and can improve profit.
- It also helps a firm compete on price without cutting quality.
How to raise productivity
- Training workers so they work faster and make fewer mistakes.
- Better machinery and technology to speed up tasks.
- Motivation through fair pay, praise and good working conditions.
- Improved organisation of the workplace so time is not wasted.
- Division of labour, where each worker specialises in one task and becomes quicker at it.
Care with efficiency
Pushing for higher output must not damage quality or overwork staff. A business that treats its workers fairly, gives rest and keeps standards high usually enjoys steady productivity gains rather than short bursts followed by mistakes. Fair treatment also means fewer workers leave, so the firm keeps its trained, experienced staff and saves the cost of hiring and training replacements. In this way, looking after people and raising productivity support each other rather than pulling in opposite directions. The table below shows how output per worker can rise as a team is trained and better equipped.
| Workers | Output | Output per worker |
|---|---|---|
| 4 | 200 | 50 |
| 5 | 300 | 60 |
| 6 | 420 | 70 |