Labour productivity measures how much output each employee produces. Businesses need to know this because changes in labour productivity can have a massive impact on the business. This is especially true in labour intensive firms.
Labour productivity equals output per period divided by number of employees. The higher the better the workforce is performing. As labour productivity increases, labour costs per unit fall.
To increase labour productivity, businesses can motivate there staff more, or train workers to be more productive.
Business need to be careful with changing labour productivity because:
Quality can fall, especially if using Frederick Taylors piece-rate system.
Unless sales increases, job redundancies will be made. Planning ahead will help not to upset staff.
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