Policies to Improve Labor Productivity
There are a number of ways that governments and companies can improve labor productivity.
- Investment in physical capital: Increasing the investment in capital goods including 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, help raise a corporation’s and an economy's productivity.
- Technological progress: 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.
GDP per hour worked is a measure of labour productivity. It measures how efficiently labour input is combined with other factors of production and used in the production process. Labour input is defined as total hours worked of all persons engaged in production. Labour productivity only partially reflects the productivity of labour in terms of the personal capacities of workers or the intensity of their effort. The ratio between the output measure and the labour input depends to a large degree on the presence and/or use of other inputs (e.g. capital, intermediate inputs, technical, organisational and efficiency change, economies of scale). This indicator is measured in USD (constant prices 2010 and PPPs) and indices.
Many employers are unaware of the linkages between health and productivity. While employers understand that investing in human capital improves the company bottom line, they are only beginning to understand the impact health has on worker productivity.
- In fact, indirect costs of poor health including absenteeism, disability, or reduced work output may be several times higher than direct medical costs1
- Productivity losses related to personal and family health problems cost U.S. employers $1,685 per employee per year, or $225.8 billion annually2
These indirect costs affect all employers, even those who avoid direct medical costs by not funding health insurance.
- The cost of obesity, including medical expenditures and absenteeism, for a company with 1,000 employees is estimated to be $277,000 per year3
- Obese employees experience higher levels of absenteeism due to illness than normal weight employees4
- In comparison, overweight women miss 3.9 days, a 15% increase in missed days; obese women (BMI greater than 30) miss 5.2 days, a 53% increase in missed days; and women with a BMI of 40 or higher miss 8.2 days, a 141% increase in missed days, almost one week more of missed work each year than normal-weight women5
- Workplace health programs that improve employee health by reducing, preventing or controlling diseases can affect worker productivity
- Improvements in physical, mental, and emotional health enhance stamina, concentration, and focus leading to greater work output
- The cost savings of providing a workplace health program can be measured against:
- Absenteeism among employees due to illness or injury
- Reduced overtime to cover absent employees
- Costs to train replacement employees
1. Partnership for Prevention. Leading by Example: CEOs on the business case for worksite health promotion. Washington, DC: 2005.
2. Stewart WF, Ricci JA, Chee E, Morganstein D. Lost productive work time costs from health conditions in the United States: results from the American productivity audit. J Occup Environ Med. 2003;45(12):1234-1246.
3. Finkelstein EA, Brown DS. Why does the private sector underinvest in obesity prevention and treatment? NC Med J. 2006;67(4): 310-312.
4. Tucker LA, Friedman GM. Financial analysis: obesity and absenteeism: an epidemiologic study of 10,825 employed adults. Am J Health Promot. 1998;12 (3): 202–207.
5. Finkelstein EA, Fiebelkorn IC, Wang G. The costs of obesity among full-time employees. Am J Health Promot. 2005; 20(1): 45-51.
roductivity is a metric that helps you understand when and how your business needs to adjust to achieve better results. Let’s take a deeper dive into some other reasons why calculating productivity is essential:
- Workforce optimization – Calculating productivity helps an organization understand their current workforce and make changes along the way in the face of changes. It provides the data to make tweaks to employee work schedules and organizational structure, reduce operational costs, and optimize employee performance.
- Creating financial impact – Calculating productivity is equivalent to keeping a finger on your organization’s pulse. In the changing market, you’re able to adjust employee processes or workflow to optimize for performance. As a result, you’re always able to ensure an organization is in the best position to increase profit while maintaining the same level of effort.
- Tracking changes to productivity – You’re able to see if anything changed and take action where necessary. Furthermore, you’re also able to be aware of any signals that could lead to irrecoverable damage.
- Managing your business – A firm understanding of your organization’s productivity levels allows for better decision-making. You’re able to manage the front line of your business and customer expectations. It also identifies areas of concern in operations and whether or not you need to expand your team or implement a new operating model.
How to calculate productivity
There is a simple general formula to calculate productivity:
Productivity = Output / Input
But how do you put this into practice?
Example #1
Let’s take, for example, an organization that produces laptops. In one month, they make over 200,000 laptops, with 40 employees, working 18 days and 9 hours per day over a period of 6 months.
| Details | # |
| No. of laptops | 200,000 |
| No. of labor hours per day | 9 |
| Months | 6 |
| No. of days worked in a month | 18 |
| Number of employees | 40 |
To work out your total input, do the following calculation:
Input = 40 (# of employees) x 9 (# of hours of work per day) x 6 (# of months) x 18 (# of days worked in a month).
That’s 38,880.
Productivity = 200,000 / 38,880 = 5.14
That means for every hour, 5.14 of output was produced. In other words, the company produced 5.14 laptops every hour.
Example #2
Now, let’s say the organization decided to hire an operations manager that optimizes processes and the workflow. This leads to a more significant increase in the number of laptops produced but maintains the same amount of effort. As a result, the data reflects the following:
| Details | # |
| No. of laptops | 270,000 |
| No. of labor hours per day | 9 |
| Months | 6 |
| No. of days worked in a month | 18 |
| Number of employees | 41 |
As a result, your output would be 6.8!
That’s a difference of 1.66 in productivity produced just as a result of one hire. You can see how having the data in front of you and one change or tweak can significantly impact the overall productivity numbers and total output.
Other methods to measure productivity
Of course, the above formula is a useful metric measure for productivity but is not the only way. In fact, it is suited to certain situations where the output can be quite clearly defined. But for example, some roles are not as clearly output-driven in terms of it being able to be measured quantitatively. Roles such as HR, for example, are not always measured by a particular number. Here are some other ways you can measure productivity, depending on the situation:
Online time tracking and project management software
Technology has developed to the point where at a glance and at any moment, you can track employee productivity. This works in environments where timesheets are used or any role that requires online work. ProofHub, Hubstaff, and ActivTrak are some examples of online time tracking software.
Project management software such as Asana and Trello are also quite helpful. These are quite useful, particularly for teams that are geographically dispersed or remote.
However, show caution with these types of tools as you don’t want to come across as micromanaging and ‘spying’ on your team members.
360-degree feedback
Yet another great technique to measure productivity is to generate feedback from co-workers. To ensure it is holistic, 360-degree feedback looks to get feedback from those above and below you, as well as any key stakeholders.
It’s a good yardstick to measure how an employee is performing and whether or not their objectives are being achieved as seen by those around them. This works great in an environment where there is regular collaboration and a great amount of communication. Feedback will be weak if the contact between the employee and peer is one or two times a year.
Follow the best practices here on how to effectively implement 360-degree feedback. Ensure that you request one or two questions around productivity.
Management by objectives
This is a technique in which an employee’s goals are clearly defined, and the tools needed to achieve these goals are provided. For example, if the goal is to increase sales by 50%, then the necessary tools need to be provided to accomplish that goal, such as technology, training, incentives, etc.
Regular check-ins will provide a clear understanding of barriers to achieving these goals and how they are tracked as well. Bi-monthly, quarterly and mid-year reviews are also useful checkpoints to track how well employees are meeting objectives.
These regular check-ins are key in management by objectives. An end-of-year review without regular check-ins is highly ineffective and only raises questions around procedural fairness.
Considerations when calculating productivity
- Industry factors – Consider that not all industries operate in the same way. In environments such as manufacturing or sales, where it is easy to represent productivity in numbers, it is easy to measure productivity. As an example, the IFC presents that the global metric for a customer service call to be answered is within 20 seconds at least 80% of the time. These all have nuances, as certain industries are more complex than others. Some industries, however, have measured are not as tangible. This is where using management by objectives or 360-degree feedback becomes useful.
- Organizational targets and benchmarks – It is possible to use external benchmarks to measure workforce productivity. This might be represented, for example, the average number of sales made per hour in a particular industry or the drop-off rate for sales calls. However, this does not apply to all jobs. Again, for service-related jobs, you may want to establish internal benchmarks and organizational targets.
- Efficiency (and how it differs from productivity) – It’s essential to establish a clear difference between productivity and efficiency—both of these need to be calculated. Productivity is an indicator of output over time, but efficiency indicates how well a task is completed. For example, an employee might be able to develop three sales presentations in one week, whereas another might create 20 sales presentations in the same period of time.
How to improve productivity
- Use technology to automate repetitive tasks – In HR, for example, automation can include interview scheduling, onboarding document signing flows, etc. At the same time that tasks are automated, upskill employees in other way. Again, in HR, that could mean helping them develop their business acumen or their HR strategy & leadership skills. That way, you can ensure a productivity increase.
- Work on employee engagement – Engagement and productivity go hand in hand. So if you want to make sure that your employees are productive, you have to continuously work on employee engagement. Research shows that engaged employees are up to 17% more productive than their peers. That’s quite a considerable difference if you calculate that across an entire organization.
- Clearly define what productivity means for each role/team – Everyone must understand what it means to be productive. It also includes setting clear goals. This will be vastly different across roles, and based on that, the ways you measure productivity will also differ (as we’ve discussed above).
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