# Labor productivity

The labor productivity ( English labor productivity ) is an economic indicator , which the ratio of the quantitative performance ( working volume ) and the quantitative labor represents. In contrast to productivity , it is a factor-related partial productivity in which the total output volume is only compared to the production factor labor .

## General

Labor productivity is mainly used in the national accounts as macroeconomic labor productivity, as well as in foreign trade (see Ricardo model ) , sometimes also in human resources . Labor productivity is further defined as

As a business indicator , it measures the productivity of workers in a company (see labor input ).

## Classification and calculation

Labor productivity is the best known and most widely used part of productivity. This is particularly due to the fact that the funds used are relatively easy to determine:

${\ displaystyle AP = {\ frac {\ text {Application amount}} {\ text {Amount of labor}}}}$

Furthermore, the economic theory differentiates different types:

• The average labor productivity indicates the amount of work produced per unit of labor employed.
• The marginal labor productivity shows the quantitative increase in production, which is based on the use of an additional unit of the factor labor.

The economic formula for labor productivity per hour worked is:

${\ displaystyle {\ text {Labor productivity}} Pi = {\ frac {GDP _ {\ mathrm {real}}} {\ text {volume of work}}} = {\ frac {GDP _ {\ mathrm {real}}} {Et \ cdot h}}}$

where the real gross domestic product , the number of employed persons and the number of hours worked per employed person (see development of labor productivity ). ${\ displaystyle BIP _ {\ mathrm {real}}}$${\ displaystyle Et}$${\ displaystyle h}$

The economic formula for labor productivity per employed person is:

${\ displaystyle {\ text {Labor productivity}} Pi = {\ frac {BIP _ {\ mathrm {real}}} {Et}}}$

or

${\ displaystyle {\ text {Labor productivity}} = {\ frac {\ text {Result}} {\ text {Workload}}}}$

The reciprocal of labor productivity is the labor coefficient . The work coefficient describes the ratio of the input amount of work to the production result achieved with it. It thus indicates how much work is required to produce a unit of goods. Among other things, this key figure plays an important role in the basic idea of comparative advantage , which David Ricardo ( Ricardo model ) established in 1817 in his work "The Principles of Political Economy and Taxation".

### Labor productivity index

The labor productivity index is defined as the output of output per input component of the volume of labor and is used in official statistics when calculating labor productivity in mining and manufacturing. Production indices are used here. These are used to measure the quantitative output or the production result and are used in the meter. A suitable measure of the labor input (input component) is used in the denominator. Depending on which measurement number is used, two labor productivity indices can be calculated:

• Labor productivity index per employee,
• Labor productivity index per hour worked.

The formula for this calculation is:

${\ displaystyle AP_ {0t} = {\ frac {Q_ {0t}} {MA_ {0t}}}}$
${\ displaystyle AP_ {0t}}$: Labor productivity index
${\ displaystyle Q_ {0t}}$: Production index
${\ displaystyle MA_ {0t}}$: Measure of labor input
${\ displaystyle 0}$: Base period
${\ displaystyle t}$: Reporting period

If the labor productivity index is greater than 1, it can be assumed that production has increased more than labor input. Labor productivity has increased.

### Macroeconomic labor productivity

In the national accounts , the macroeconomic labor productivity is the quotient of the gross domestic product and the amount of work units used. This can be the number of employed or employees, the number of hours worked or the number of hours paid. The macroeconomic labor productivity indicates what contribution an employee makes on average to the gross domestic product.

${\ displaystyle AP_ {ges.} ​​= {\ frac {BIP_ {real}} {\ text {volume of work}}}}$

### Average labor productivity

Average labor productivity (average productivity of labor) describes the amount of output that is generated on average in one hour of work. This is the quotient of the production volume and the work volume. Average labor productivity increases when the quantity of production Q grows faster than the volume of labor A; this means that on average fewer working hours are required to produce one output unit.

${\ displaystyle AP_ {d} = {\ frac {\ text {Production volume (Q)}} {\ text {Working volume (A)}}}}$

### Calculation of the added value

Another way of calculating is via the added value , based on production-relevant units, for example:

• Value added per employee (in economic terms , e.g. as added value per hour of attendance ) or added value per capita (value added per capita), added value per employee (economically, mostly measured over a financial year) - for assessing personnel productivity (individuals such as departments or companies up to entire branches of industry)
• Value added per machine hour - to assess machine productivity

## application

Labor productivity determines the real standard of living a country can achieve for its citizens. The value that an economy produces in goods and services is equal to the value paid in all factors of production (e.g. wages and entrepreneurial profits). Consumers can only increase their consumption by increasing the total amount they produce.

### Labor productivity in an economy

Real gross domestic product is generally used to consider the development of labor productivity in an economy . When comparing economic sectors within a country, the value added of the economic sectors can be used in current prices based on an employed person.

It should be noted, however, that a comparison of labor productivity between different economic sectors is not always useful. In many industries, a large part of the added value is generated through the use of capital.

An interesting consideration, on the other hand, is the development of labor productivity in an economic sector. A change in the key figure is preceded by either a change in the output or input quantity. From this, strengths and weaknesses and reactions of the industries in certain economic phases can be derived and crisis-proof or crisis-prone industries can be identified. This information is important for the direction of economic policy during a recession. For example, the output per employee in manufacturing fell by 14.2% at the beginning of the sovereign debt crisis in 2009. Politicians used this information as a basis for decision-making in order to use the instrument of short-time working in order to avoid numerous layoffs.

In Germany, labor productivity is determined monthly by the Federal Statistical Office for the manufacturing industry. To this end, the State Statistical Offices survey the monthly production of over 5400 industrial products by value and quantity in manufacturing companies with 50 or more employees. Production indices are created from these values, which serve as output components in labor productivity.

### International comparisons

For international comparisons, the gross domestic products can be converted into a currency, such as US dollars or euros, at the respective exchange rates. Furthermore, the gross domestic products can be made comparable using purchasing power parities . With the latter, the different purchasing power of the different currencies should be taken into account. This means that the same amount of money is assumed for goods and services in a shopping cart for different geographical areas. Which corresponding data are chosen to compare the labor productivity of different economies depends largely on the purpose of the analysis. In order to compare the labor productivity of individual years, the gross domestic product at current prices and current purchasing power parity is used, whereas when comparing labor productivity over a certain period of time, constant prices of a base year should be assumed.

The question arises to what extent such indicators are comparable with one another. For example, the USA and Europe had different ways of calculating gross domestic product for a long time. For a long time the USA calculated its gross domestic product within the framework of the “National Income and Product Accounts” (NIPA), whereas in Europe the “System of National Accounts” (SNA) was used. NIPA and SNA differ considerably in parts. For the key figure of labor productivity, this means different calculations of the output size in the numerator. The result is a poor comparability of key figures based on this same gross domestic product. Jochen Hartwig describes in his thesis "Measurement problems in determining the growth in labor productivity - presented using a comparison between Switzerland and the USA" and the problems in determining the input variables. The input variable is usually given as the labor force of working age or also in hours worked. Problems of comparability can arise, for example, if not all persons of working age are involved in the production process (unemployment) or if not only the working population is involved in the production process, but also, for example, pensioners. Furthermore, 100% of the working-age population is not available to the labor market (incapacity or unwillingness to work). The proportion of part-time jobs must also be taken into account. At the Federal Statistical Office destatis, the time required for an activity is irrelevant.

In 2014 a general revision of the national accounts based on the SNA 2008 and the ESA 2010 (European System of National Accounts) took place. This is intended to improve international comparability, especially of GDP. However, there are also groups of countries that do not even meet the standards of the SNA 1993. A globally standardized calculation of GDP and thus also of labor productivity is therefore not available to this day.

If the number of workers is used as a unit of work, this can be compared with the per capita income of an economy.

### Productivity-oriented wage policy

The concept of productivity-oriented wage policy is based on an orientation of nominal wages to macroeconomic labor productivity, or the respective industry productivity. Wages and salaries should grow in the same proportion as labor productivity. The aim is to stabilize the price level . The labor costs per product unit ( unit labor costs ) remain constant. In order to ensure that price increases are not at the expense of the employee, the wage adjustment includes not only productivity development but also price development ( Meinhold formula ).

${\ displaystyle {\ dot {w}} _ {n} = {\ dot {\ pi}} + {\ dot {P}}}$

The nominal wage then increases to the same extent as real labor productivity and the price level has risen. ${\ displaystyle w_ {n}}$${\ displaystyle \ pi}$${\ displaystyle P}$

Trade unions criticize the fact that the relative distribution of income between employees and employers is strengthened and that no redistribution is made possible. Other cost factors that affect pricing are also not taken into account here.

## Labor productivity in industrialized countries

Labor productivity in selected countries according to OECD (2014)
country Real GDP
per year
(in billion USD)
Employed
(in millions)
Working hours
per year
(in billions)
GDP in USD
per year
per employed person
GDP in USD
per hour worked
absolutely relative to the US absolutely relative to the US
United States 17,419 149 258 117.209 100% 67.44 100%
Japan 4,687 65 112 71,959 64% 41.48 62%
France 2,526 27 40 93,446 80% 62.75 93%
Germany 3,642 43 58 85,379 73% 62.27 92%
Great Britain 2,552 30th 50 84,478 72% 50.55 75%
Labor productivity growth rate per employed person and per hour in selected countries according to OECD
country 1970-1980 1980-1985 1985-1990 1990-1995 1995-2001 2001-2007 2007-2009 2009–2012
GDP / adult GDP / hour GDP / adult GDP / hour GDP / adult GDP / hour GDP / adult GDP / hour GDP / adult GDP / hour GDP / adult GDP / hour GDP / adult GDP / hour GDP / adult GDP / hour
United States 1.0 1.5 2.0 1.7 1.3 1.4 1.4 1.3 2.1 2.3 2.0 2.1 1.0 1.8 1.7 1.3
Japan 3.7 4.3 3.5 3.7 3.9 4.5 0.6 2.1 1.3 2.0 1.4 1.6 −2.3 −0.3 2.3 1.7
France 3.1 4.0 1.7 3.5 2.2 2.2 1.3 2.0 1.0 1.8 1.2 1.5 −1.2 −0.8 1.0 0.9
Germany 2.6 3.8 1.2 2.2 1.4 2.5 2.1 2.5 1.1 1.6 1.2 1.6 −2.7 −1.3 1.6 1.4
Great Britain 1.8 2.7 2.5 2.6 1.5 1.4 3.2 3.6 2.3 2.5 2.2 2.5 −2.5 −1.8 0.3 0.3
Labor productivity of the Federal Republic of Germany and Japan in comparison to the USA , current prices and exchange rates. (Own calculations based on data from the European Commission.)

The US had a higher level of production per person employed in 2001 than the other industrialized countries. The high growth in US labor productivity is the result of rapid technological change in the 1990s. The increased use of computers and robots , known as the computer revolution, created new opportunities for growth. In general, it can be said that the increasing use of information and communication technologies will further increase labor productivity per employee and per hour worked, although this is not actually due to more qualified employees, but to the increasing automation of work processes. In the decades before that, growth in the US was much lower than in other developed countries. From 1974 to 2001 it was generally smaller in the industrialized countries than from 1960 to 1973. Japan had the highest rate of labor productivity growth from 1960 to 1991, followed by Germany and France. The growth in the US was the lowest compared to the other major economic powers and declined for three consecutive quarters in mid-2016. This is partly due to differences in investment rates and capital stock growth in these countries. The higher growth rates of Japan, Germany and France resulted from the reconstruction after the Second World War, whereby high capital growth played a role. A catch-up process has therefore taken place in these countries. In the years from 2001 to 2007, Great Britain recorded the comparatively highest increase in labor productivity per person in employment and per hour worked, but had to cope with the sharpest slump in the years of the financial and economic crisis of 2007-2009. It is noteworthy that the USA, in contrast to all the other states mentioned above, was able to record a positive development in its labor productivity precisely in these crisis years. According to the Federal Statistical Office, overall economic labor productivity per employed person in Germany increased by 22.7% between 1991 and 2011. Labor productivity per hour worked rose by 34.48%. This reflects the 7.5% decrease in the average hours worked per employed person.

## criticism

Since labor productivity only relates to the input factor labor, other factors that are necessary for production are neglected (soil, environment and capital). Labor productivity basically says nothing about the actual importance of the labor factor in the production process. A change in the application rate is not necessarily based on a change in work performance. For example, high labor productivity does not necessarily mean that the factor work is of great importance. An increase in labor productivity could even be due to a decreasing importance of labor, e.g. B. through technical progress. Furthermore, an increase in labor productivity can result from an increase in the capital employed or an improved training of the workforce. Another point of criticism is that labor productivity is given as a relative number and only refers to the previous year. This only shows whether a value is “better” or “worse”, but not a specific distance ( ordinal measurement ).

## Literature sources

• Brockhaus (Hrsg.): The Brockhaus Economy, Labor Productivity: Leipzig, Mannheim 2004, ISBN 3-7653-0311-9 .
• Franz Haslinger: National Accounts. 6th edition, Munich 1992, ISBN 3-486-22406-9 .
• Uwe Westphal: Macroeconomics. 2nd edition, Heidelberg 1994, ISBN 3-540-57934-6 .
• Robert S. Pindyck, Daniel L. Rubinfeld: Microeconomics. 6th edition, Munich 2005, ISBN 3-8273-7164-3 .
• Heinz-Josef Bontrup: Economics - Basics of Micro and Macroeconomics . Munich, Vienna 1998, ISBN 3-486-24233-4 .
• Thomas Weiß: Labor productivity, not just a central labor market and macroeconomic category , in: Institute for Interdisciplinary Ergonomics, Stephan Laske, Manfred Schweres (Ed.): Work orientation in economics - diversity as a crisis indicator or as a potential? Series of publications on interdisciplinary ergonomics. Volume 2. Munich and Mering 2014, ISBN 978-3-86618-880-8 (print), ISBN 978-3-86618-980-5 (e-book).

Commons : Labor productivity  - collection of pictures, videos and audio files

## Individual evidence

1. Brockhaus (Ed.), The Brockhaus Economy, Labor Productivity: Leipzig, Mannheim 2004, p. 52
2. Springer Gabler Verlag (Ed.): Gabler Wirtschaftslexikon, keyword: Labor productivity: Arbeitsproduktivitaet . Retrieved June 6, 2015 . (CEST)
3. Gabler Verlag (1993), Gabler Wirtschaftslexikon (AE) p. 182.
4. Woll, Artur (2000), Wirtschaftslexikon p. 37.
5. Labor productivity indices in the manufacturing sector. (No longer available online.) Archived from the original on September 21, 2011 ; Retrieved May 14, 2008 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (CEST)
6. ^ Uwe Westphal: Macroeconomics . 2nd edition, Heidelberg 1994, p. 7.
7. Robert S. Pindyck, Daniel L. Rubinfeld: Microeconomics . 6th edition, Munich 2005, p. 273.
8. Cf. Thomas Weiß: Labor productivity, not just a central labor and macroeconomic category. Journal of Ergonomics 01/2011.
9. Federal Statistical Office Germany: Keyword: Indices of production and labor productivity in the manufacturing industry: online on the Internet: https://www.destatis.de/DE/Publikationen/Themati/IndustrieVerarbeitendesGewerbe/Konjendungdaten/IndexProduktion.html accessed on June 15, 2015 , 08:15
10. Hartwig, Jochen: Measurement problems in determining the growth in labor productivity - presented using a comparison between Switzerland and the USA, published under Lucius & Lucius (Ed.): Jahrbücher f. Economics u. Statistics, Stuttgart, 2006
11. Federal Statistical Office, Wiesbaden, [1] https://www.destatis.de/DE/Publikationen/STATmagazin/Arbeitsmarkt/2012_01/Methods.html , accessed on January 4, 2016, 14:00 (CEST)
12. Federal Statistical Office, Wiesbaden [2] https://www.destatis.de/DE/ZahlenFakten/GesamtwirtschaftUmwelt/VGR/FAQ/Generalrevision2014/InternationaleVergleichbarkeit.html , accessed on January 4, 2016, 14:00 (CEST)
13. Springer Gabler Verlag (Ed.): Gabler Wirtschaftslexikon, keyword: Labor productivity: online in the Internet: http://wirtschaftslexikon.gabler.de/Definition/produktivitaetsorientierte-lohnpolitik.html accessed on June 9, 2015, 12:44 pm (CEST)
14. database of the OECD; "Labor productivity growth in the total economy" [3]
15. [4] http://www.n-tv.de/wirtschaft/Digitalisierung-bedroht-Arbeitsplaetze-article16192916.html , accessed on January 4, 2016, 3:03 pm (CEST)
16. Winand von Petersdorff-Campen, Philip Plickert: United States: How America's Declining Productivity Endangers Prosperity . In: Frankfurter Allgemeine Zeitung . September 8, 2016, ISSN  0174-4909 ( faz.net [accessed September 9, 2016]).
17. Pindyck, Rubinfeld: Microeconomics . P. 274 f.
18. Federal Statistical Office Germany ( Memento of the original from March 21, 2008 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. , accessed April 30, 2008 3:03 p.m. (CEST)
19. [5] , accessed June 15, 2015, 6:22 pm (CEST)
20. ^ Adolf E. Luger: General Business Administration. (Vol. 1), 5th edition, Munich 2004, p. 55 ff.
21. ^ Franz Haslinger: National Accounts. 6th edition, Munich 1992, p. 149.