Generating Productivity

Productivity is basically defined as the measure of “the output from a production process per unit of input”. In labor, for example, it is typically a measure of “output per labor-hour.”

One area of great concern to industrialists and capitalists is related to labor productivity and the impact of the many factors around it – workplace practices, the advent of computers, capital infusion, education and training, and many others.

The main reason is the fact that while the impact of human capital investments on the workers’ wages had been studied extensively, there had been little information on the direct effect of human capital on productivity.

Labor productivity

To date, however, there had been new studies conducted and published. These studies examined the link between labor productivity and a variety of workplace practices, capital and computers, both in the manufacturing and non-manufacturing sectors.

In the conducted studies, the other issues factored in included the size and age of the business, material inputs, capital stock, workers’ experience, and capacity utilization.  

Findings

The studies were done to check the factors that determine labor productivity for a given period, the size of capital stocks needed for material use, the equipments, and the workplace practices. They also included computer use, human capital investments, high performance work systems, profit sharing, and recruitment practices.

One standout data, however, showed that increasing the educational level of employees by at least a year increases productivity as well. (8.5% in manufacturing and 13% in the non-manufacturing sector)

Training and decision-making

It demonstrated that formal training (done offsite, meaning from schools etc.) increased productivity in manufacturing. Computer savvy also enhanced productivity, especially in the non-manufacturing sector (sales, services, etc).

Other findings include that unionization or employee participation in decision-making also raised productivity. Also, it was found out that TQM (total quality management) system did not have much significant effects on productivity.

Rather, it was raising the proportion of workers in making decisions in the work place (regular meetings, etc.) that showed a positive impact on labor productivity.

Profit-sharing 

In manufacturing plants with profit-sharing schemes for non-managerial workers, there was a 7% higher labor productivity shown compared with their competitors in the same field. Those with R & D (research and development) had an average 6% increase.

In effect, the studies showed that profit-sharing extended to non-managerial employees had increased productivity more than what the profit-sharing scheme with managerial workers did. Benchmarking also raised labor productivity by 6%.

Computers

To date, computers have also played a significant role in productivity increase (12% output) compared in the 80’s when equipment investments accounted for 7% output growth.

Investments in computers and other IT equipments were about 1/3 of total investments in the 90s.

Investments 

All in all, investments in education and training generate higher productivity. Moreover, it promoted higher wage growth. Studies had shown that raising the workers’ educational level resulted in around 8 to 13% higher labor productivity

It had been found that investments in computer training (especially in the non-manufacturing group) resulted in higher productivity (and wages) of employees. Workers who use computers are paid 15% more than their counterparts who don’t.

However, the remaining challenge is to enable more workers equipped with skills to allow them access to better jobs. In such a scenario, they can enjoy a higher standard of living as well as contribute to higher productivity growth.

Cutbacks Slice Into Productivity

World business conditions notwithstanding, many companies nowadays are filled with apprehension and anxiety as to their future. Businesses are cutting back their employees’ work hours. Productivity is not only at a standstill in some places, it actually had gone down in some, too.

Some businesses had their employees take one paid day off every pay schedule. Others have their office days only from Monday to Thursday while still others shortened their work days.

Impact on productivity

There were two interesting reactions to these cost-cutting methods done by businesses. The first outcome was totally unexpected.

While there was some lost productivity because of fewer working hours and also because of the negative working environment that it created, many businesses discovered that productivity during working hours was actually higher than before the cuts were implemented.

There were two reasons forwarded as to why business productivity may be higher as a consequence of decreased hours in the work place.

The first was the employees’ perception that they have lesser time available to them to complete the same amount of work as they did before. It moved them to put extra efforts to get everything done, and worked harder than they had in the past.

Moreover, the motivation of fear was strong. People were worried that the cutbacks were just the beginning and that more layoffs were soon to follow.

In an effort to keep their jobs, the people worked harder than before to at least put on a picture that they are worth keeping as employees.

Negative motivations

On the other hand, both of these motivating factors are unfortunately short-term situations. After the workers adapted to the shorter work hours, their stress levels decreased in regards to their perceived amount of time to get the job done.

Soon, they reverted back to their old coffee breaks and Internet surfing instead of working.

Regarding the motivation of fear, it did not take long for the working environment to become highly negative. Negativity in the office tends to decrease productivity.

Some businesses have seen more employees spending more time at the proverbial water cooler. They are griping about the fact that they do not have enough money because of the present cutbacks.

Because of the negative atmosphere around, nobody wants to contribute anymore to the overall good of the business (which decreases productivity). After the fear stopped motivating these employees, the result is lower productivity in the office.

Some suggestions

Companies that may discover themselves to be in this situation need to do some damage control on the employees’ morale. The goal would be to maintain a positive working environment.

Keep open all lines of communication with everybody. Airing things out soothe nerves and can bring back people to their ideal selves.

Make it apparent to everyone that you are all working together to get through the present difficult times. This is better than fighting each other all the time for petty things. In such a relaxed atmosphere, people tend to calm down and become their productive selves once again.

Trends In Productivity

Productivity, defined as a measure of the amount of output per hour of work, is shown to be typically pro-cyclical. This means that productivity increases during economic upswings and slows down (or even declines) when the economy is in a downturn.

Several causes have been forwarded to sustain this. One declares that labor and capital inputs are worked harder during boom times than in busts. Another observation pronounces that the reallocation of resources to more productive activities is faster when the economy grows rapidly than when it slows down.

Pro-cyclical exceptions

For 2009, productivity growth was expected to slow down further in many countries. However, there appeared to be some exceptions to the pro-cyclicality of labor productivity.

The experiences of the United States and Europe are two examples reflecting this economic wrinkle. Compared side by side, striking differences are evident between these two regions in terms of the productivity growth rates with which they entered the current recession.

For the long period of 2000-2008, labor productivity in the United States increased at 2% against 1.5% in the European Union. (The 1.1% figure is even much smaller in the original EU-15 member states that exclude the new member states from Central and Eastern Europe.)

These differences reflect a more efficient use of capital, labor, and other sources of growth in the United States. The most recent productivity advances of the U.S. have been realized, however, through rapid layoffs. This further suggests that the productivity of the remaining workers and firms is actually strengthening.

Traditional productivity growth rates 

During the run-up of 2008, the Euro Area showed a surprisingly weak productivity growth (below 1%). This was attributed to the large increases in employment coming from a relatively large labor reserve pool.

In the same quarter, output and productivity growth rates in the Euro Area turned negative following the traditional pattern that employment growth does not adjust as quickly to a deteriorating economy in Europe as it does in the U.S.

Presently, productivity growth rates in advanced economies are falling below historical structural productivity trends. These represent the rate where productivity can grow.

To get back to the structural growth trend, an increased productivity through investment in new capital and innovation is needed - and not just through cost-cutting of the current resource base.

This would comprise investments in technological change and innovation, skill and performance level of the labor force, and all the organizational intangibles (management and workplace practices, organizational structure, ICT applications and human resource strategies).

Given the current constrained economic climate, all these are big challenges. Added to this is the expectation that high productivity growth rates also imply greater efficiency of resources once the economic environment improves.

Productivity growth will also translate into high levels of output per hour. These higher productivity levels will also reflect the presence of a strong resource base in terms of human and physical capital per worker.

When maintained during the downturn, they will provide the firms with the means to more easily innovate themselves out of the recession resulting in a better resurgent productivity growth.

The Best Guide to Bolstering Productivity and Effectiveness

From the best-selling book 'The Seven Habits of Highly Effective People' by popular and influential author Stephen R. Covey comes different principles that lead to effectiveness from high and satisfying work performance. Since the principles have been introduced, the human resources sector has never been the same again. Now, it has working principles and frameworks that serve as guidance for employees who strive to do better and increase productivity within and outside the workplace.

Focus should be given to the second principle for highly effective people, as structured under Covey's highly publicized book. The principle advises people to 'begin initiatives with the end result in mind'. You may readily infer that this assertion is intended to convince people to be results-oriented and at the same time be more productive. Looking further into the essence of the statement would definitely point to that direction.

This second habit of highly effective people is mainly based in a premise that initiatives can be divided into two groups: the first being those conceived on mind and the second being initiatives done through action. As such, many experts claim that numerous aggressive endeavors fail because of failure on the mindset. Thus, human resources personnel and corporate managements would always strive to set a mindset among employees and staff that would lead to attainment of targets and overall productivity.

The most convenient and effective measure on how to start initiatives with the end result in mind is to initially formulate a working personal mission statement. Such a statement would have a person set goals and formulate ways on how such targets would be attained. Such is a usual activity of highly organized people.

By setting a goal, you are becoming more proactive. You would eventually observe that you are becoming highly organized because your thoughts and ideals are more targeted to the attainment of goals, which you yourself or your boss may have set. By having a personal mission statement, you would notice that your own actions and mindset are regulated to take the direction that would lead to productivity and success.

When you set your goals and your targets, it is imperative that you identify a center of life where guidance, wisdom, security, power and inspiration could be sourced out. To find this on a personal level, you have to first know yourself and define your priorities in life. In doing so, you would find that yourself is centered on one specific factor, that can be about money, power, work, self, pleasure, possession, family, spouse or company. Knowing yourself well calls for knowing what your main priority and target is. To set a goal for your initiatives, it would significantly help if you would determine the center of your priorities.

Once you set your goal, you would find that you are smooth-sailing to doing endeavors and efforts that would clearly and obviously lead to attainment of such a target. Thus, Covey's second principle is a necessity on a personal and management level. It is useful on a personal basis if you would use the principle to improve your performance and boost productivity. It is useful on the management level if your company is setting or imposing goals to give direction to your productivity and professional performance.

The Importance Of Labor Productivity Growth

As a component of total productivity, the growth of labor productivity is one important marker in determining the rise or fall of overall economic growth. As of the present, however, labor productivity is simply another statistic number reported in government agencies.

The interest in this number is hinged only on the belief that it is related to a number of things important to economists and government policy-makers. It is thought to be connected to overall economic growth, real per capita income growth, and inflation.

Economic growth 

Labor productivity growth and overall economic growth are definitely relevant to one another. By definition, the sum of growth of labor hours plus labor productivity growth is the output growth. (Higher labor productivity growth means higher output growth.)

Longer time periods make this relationship clear. For instance, output growth slowed down in the 70s and 80s as labor productivity growth slowed down. When labor productivity improved in the 90s, the output growth also rebounded.

However, there were time periods when these two were at variance. Experts think this is caused by business cycle forces affecting the demand and supply of labor. The swings in the quantity of labor affect the productivity fluctuations.

Per capita income growth

Economic textbooks declare that productivity growth and real wages growth are equal. By this assertion, it would seem that productivity growth is equal to the growth of real per capita income.

In real terms, this is not exactly correct.

There are several reasons for the variance. One, there is a multiplicity of produced goods. There is also a divergence between output price deflator used to compute productivity and consumer product price used in computing real incomes.

In addition, there is slippage between growth in wages per hour and growth in income per capita. This is caused by fluctuations in unemployment, labor force participation, and working hours per person.

Inflation

One question posed by experts is the following: If productivity growth is inherently a real phenomenon and inflation is a monetary phenomenon, why is there a relationship?

One possibility they had looked into is that higher inflation rates could distort the price mechanism. In turn, it could trigger reduced efficiency throughout the economy. Inflation may have a negative effect on capital accumulation.

The opposite could also be true. In periods of fast outputs and real income growth, it is easier for monetary authorities to impose anti-inflationary rules.

So far, the economists are not yet clear on any stable relations between inflation and either capital formation and technological change. By the same token, it is argued that inflation and productivity could be unrelated.

Nevertheless, the data are clear in showing links between productivity growth and inflation. It is shown that at longer intervals, the magnitude of their relationship grows. It seems that periods of high productivity growth are periods of lower inflation.

The interpretation by economists on the correlations between productivity and output, real per capita income and inflation are further clouded by other economic factors. Further studies are still to be done.

However, one thing is evident. Labor productivity growth is not just a statistic number but an important component in total economic growth as seen even from a layman’s point of view.