According to Haslam, Neale and Johal (2000), `the total factor productivity us in general defined in two main types; the Level of labour and capital and their efficiency of production; and the productivity of the firm. The productivity of capital and labour is calculated as: total outputs divided by inputs of labour and capital`. Labour cost in a company makes a major part of the production cost and should be therefore most cost efficient. The total employment divided to the total physical output equals the total labour productivity….EXAMPLE… If a company produces more the one product or provides service rather the manufactured it can be difficult to recognise the physical output. Therefore, financial proxies such as value added or net output of employment are used. In order to compare the figures fair with each other, financial indexes can be produced. `This is possible by dividing the total number of labour hours into the value added`, (Haslam, Neale and Johal, 2000).
The result of this calculation is the value added generated by labour hour. This index can be compare not just with the past years of production of a firm, in addition it is possible to compare with other companies to obtain a broad prospective about labour productivity and how efficient labour is used. Furthermore, over the years inflation changes the purchasing power of money and capital productivity varies. Assts may change value due to depreciation or capital consumption. Therefore, companies analyse the value added per £ of fixed assets. `Capital productivity is calculated as capital stock (before depreciation or capital consumption) divided into the net output or value added figure`, (Haslam, Neale and Johal, 2000).
The relationship between a growing product market and productivity is that; in a growing market the demand of a manufactured good increase. The result is an increase in volumes produced and sold. However, productivity is the output less the cost of production. Therefore, a growing market is not the only factor in order to achieve greater productivity. Like it was briefly pointed out in the paragraph above, labour cost is expensive and therefore should be used efficiently.
A boost in productivity may occur whilst improving the productive flow. Due to the introduction of new techniques, working methods such as cell or mass production; and technical inventions such as conveyors labour costs can be cut and productivity increased. Another factor for increasing productivity may be employees’ satisfaction. In addition, in a growing market it comes to fragmentation and segmentation and the market matures. In order to stay competitive many firms lower their prices, which results less revenue generated.
Labour time most efficient used
labour efficiency, product quality, brand recognition and the economy
Haslam, Neale and Johal, Economics in a Business context 3rd edition, Thomson Learning 2000, London