Macroeconomics
D. Labor Productivity Productivity isacrucialdeterminantofaneconomy'soveralloutputandeffciency.Inmacroeconomics, productivity gains are seen as a driver ofeconomicgrowth.Itisdefnedasthedegreeofeffciencyat which goods and services are produced, measured by comparing production input to output. Measuring Labor Productivity The productivity of labor represents the output produced per employed worker. The simplest way to measure average labor productivity is: Labor productivity = ℎ Whereby: ● Totaloutputrepresentsthetotalquantityofgoodsorservicesproducedbyacompany,industry, or country during a specifcperiod.Outputcanbemeasuredinvariousunits,suchaswidgets, tons, or dollars, depending on the context. ● Totallaborhoursrefertothecumulativenumberofhoursworkedbyallemployees,workers,or the labor force during the same period for which we are measuring productivity. Higherlaborproductivitymeansthat,onaverage,eachworkerisproducingmoreeconomicvalue,which is indicative of a more effcient and productive economy. Example: ● Total number of bicycles produced = 1,000 ● Total number of labor hours worked by all employees in the factory during the same month = 2,000 hours ⇒ Labor productivity = Total output/Total labor hours = 1,000 bicycles/2,000 hours =0.5bicyclesper labor hour. In this example, the labor productivity ofthefactoryis0.5bicyclesperlaborhour.Thismeansthat,on average, the factory produces half a bicycle for every hour of labor input. Key Determinants of Labor Productivity Factors that determine and help increase labor productivity include: A factory that produces bicycles recorded the following data for a month:
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