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Productivity

Productivity: The amount of output produced in relation to the resources used.

If productivity rises, a firm can make more with the same resources, or even with fewer. This lowers a firm’s costs and helps it make more profit, so firms and governments both try to raise productivity over time.

Labour productivity is the output per worker.

Formula:

Labour productivity = Total output ÷ Number of workers

The answer is in units of output per worker, e.g. chairs per worker per month.

Factors affecting productivity

Land

Some land is fertile, while other land is too dry, too wet or too mountainous to farm well. Farmers and governments can make land more productive in four main ways.

Ways to raise the productivity of land:

• Use of fertiliser: fertilisers are chemicals that keep plants healthy and increase crop yields. However, some can damage human health, wildlife and the natural environment, so their sale and use are strictly controlled.
• Drainage: some land is flooded and cannot be farmed. Drainage lets the water flow away, so crops can be grown on it.
• Irrigation: water is piped or channelled from a river, lake or stream onto land that lacks it. It is used mostly in dry regions and during droughts, and it can also protect plants from frost.
• Reclamation: new land is created from the sea, riverbeds, lakebeds or drained wetlands. For example, Hong Kong International Airport was built on reclaimed land.

These methods do not always work quickly. Many farmers cannot afford drainage equipment or reclaimed land, irrigation and reclamation take time to have an effect, and some farmers prefer to keep to traditional methods.

Labour

Human capital: value of the workforce or an individual worker.

Ways to raise the quality of labour:

• Education: the government can invest in schools, e.g. better equipment and better teaching, and in vocational courses that give young people the skills employers need. Better-educated workers can work more efficiently.
• Training: firms can train their own staff. Training increases workers’ knowledge and skills, so they perform better at work. It also improves motivation and shows new staff how to stay safe at work. However, education and training take time, so the gain in productivity may not show for years.
• Migration: attracting skilled workers from abroad can raise the quality of labour. Even unskilled migrants can raise productivity, e.g. a migrant childminder may free a highly skilled parent to go back to work. Migration also adds to the supply of labour and helps fill shortages in sectors such as construction and care.

Limits to migration:

• Emigration: a country’s own skilled workers may move abroad, taking their skills with them.
• Wrong skills: migrants may not have the skills needed to fill every shortage.
• Short stays: some migrants return home after a short time.
• Lower wages: if many more people are looking for work, wages may fall, which can demotivate workers.

Capital

Productivity often rises when firms use more capital, sometimes in place of workers, or when new technology replaces older, less efficient technology. Firms can then produce more at a lower cost and may invest the extra profit in even more capital.

Technological advances in each sector:

• Primary: tractors, combine harvesters and irrigation systems increase farm output and reduce waste.
• Secondary: robots and computer-controlled machines cut, press, mould, sew and weld much faster than people, and take over boring, repetitive jobs.
• Tertiary: internet shopping, self-service checkouts, ordering tablets in restaurants and new medical techniques let fewer staff serve more customers.

New technology can take time to bring in, and staff and customers may need help using it at first, so productivity may not rise straight away.

Division of labour

Division of labour: Breaking down the production process into smaller tasks.

Each worker is given one specific task and concentrates on it, so they become a specialist. For example, a building firm may employ bricklayers, electricians, plumbers and roofers, each doing only their own part of the job.

Advantages and disadvantages for workers

Advantages for workers:

• More skilled: doing the same task again and again makes a worker better and better at it.
• Better job prospects and pay: highly skilled workers find jobs more easily and are likely to be paid more.
• Job satisfaction: workers may enjoy their work more if they are highly skilled at a specialist task.

Disadvantages for workers:

• Boredom: repeating one simple task all day can be very boring, which lowers job satisfaction and motivation.
• Health problems: repetitive movements can cause problems such as joint wear.
• Risk of unemployment: a worker with only one narrow skill may struggle to find another job if that task is no longer needed.

Advantages and disadvantages for businesses

Advantages for businesses:

• Higher efficiency: specialist workers do tasks more quickly and accurately and make fewer mistakes, so productivity rises and costs fall.
• Less wasted time: workers stay at one workstation, so they do not lose time collecting tools, moving around or resetting machines.
• Specialist equipment: it is easier to use specialist tools and machinery when each task is separate.
• Easier organisation: specialist workers fit neatly into a structured system, such as a production line.

Disadvantages for businesses:

• Poor motivation: bored workers may produce poor-quality work, arrive late, take more time off or leave, which lowers productivity and profit. Rotating workers between tasks can reduce the boredom.
• Interdependence: each stage depends on the one before, so if one stage breaks down, the whole process may have to stop.
• Loss of flexibility: if a specialist is absent and nobody else has their skills, production may be disrupted.