Labour Productivity

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  • Labour Productivity
    • Why labour productivity matter?
      • Labour costs are usually a significant part of total costs
      • Business efficiency & profitability are closely linked to productive use of labour
      • To remain competitive, business needs to keep unit costs down
    • Formula
      • Output per period (unit) / number of employees
    • Factors influencing labour productivity
      • Extent & quality of fixed assets e.g. equipment
      • Skills, ability & motivation of workforce
      • Methods of production
      • Extent to which workforce is trained and supported
      • External factors e.g. reliability of supplier
    • Ways to improve labour productivity
      • Measure performance & set targets
      • Streamline production processes
      • Invest in capital equipment (automation & computerisation) - expensive
      • Invest in employee training - new set of skills
      • Improve working conditions
      • Wearables at work
    • Potential problems in increasing labour productivity
      • Potential trade off with quality - higher output must still be of right quality
      • Potential employee resistance - depending on methods used (new technology)
      • Employees may demand higher pay for improved productivity - labour costs per unit


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