Labor and Capital Productivity

• Businesses aim to use resources efficiently, increasing output by raising productivity.
• Productivity: the amount of output from a given quantity of resources.
• Labor productivity is output per worker and is calculated as (Total Output) / (Number of Workers).
• Capital productivity is calculated as (Total Output) / (Capital Employed).

Improving Labor Productivity

• Government investment in education improves the quality of teaching.
• Businesses can also provide training to improve existing methods
• Motivated workers achieved through financial incentives (piece rates, performance-related pay, profit sharing).
• Non-financial incentives like job rotation and team working can also improve motivation
• Effective organization and management may involve reconfiguring factory layout.
• Flexible labor with workers trained for multiple roles allows quick job switching.
• Flexitime allows employees to choose working hours, helping extend business hours.

Increasing Capital Productivity

• New, more efficient technology increases capital productivity.
• Productivity rises if production becomes more capital intensive.

Downsizing

• Downsizing improves efficiency: reducing capacity by laying off workers and closing unprofitable divisions.
• Downsizing advantages include cost savings, increased profit, and a leaner, more competitive operation.

Relocation

• Businesses relocate to improve efficiency by using cheaper resources (lower rent, wages, transport costs).
• Multinational companies locate call centers in India to use cheap skilled labor.
• Many firms have located factories in China.

Outsourcing

• Outsourcing improves efficiency by giving specific jobs to specialists who can do the same work at a lower cost.

Lean Production

• Lean production: improving productivity through reduced resource use.

Impact of Productivity Improvements - Financial Impact

• Improved productivity leads to lower costs if more output is produced with the same resources.
• Lower costs should improve profitability and provide greater returns for the owners.
• Measures to improve productivity (e.g., investing in new technology) may cost money.
• Investing in new technology may require borrowing money or using retained profit.
• Borrowing or spending savings impacts cash flow or increases debt.

Impact of Productivity Improvements - Competitiveness

• Improved productivity will increase business efficiency securing a competitive edge.
• Competitive edge may result in increased market share.

Impact of Productivity Improvements - Workforce

• Measures to improve labor productivity affect workers and depend on implemented measure.
• Financial incentives increase worker earnings.
• Non-financial incentives make jobs more interesting.
• Negative impacts may include job losses from new machinery or outsourcing.
• Negative consequences of job losses are industrial action and decreased morale.
• Downsizing or relocation negatively impact workers.

Impact of Productivity Improvements - Customers

• Customers benefit from business efforts to improve productivity.
• Lower costs may lead to lower prices.
• Some measures can result in better products/services.
• Better training for customer service staff offers faster and more effective service.
• New tech and lean production can improve product quality.