2.3.1 Productivity Flashcards
productivity
Measures the efficiency with which resources are used
capital intensive
Uses large amounts of capital and little labour
Labour intensive
Uses large amounts of labour and little capital
productivity for a business
benefits
- Productivity measures how efficiently a business converts its inputs such as labour and capital into output (goods and services)
- Increases in productivity are achieved by producing more from the same number of inputs or maintaining production with a smaller number of inputs
- Both of these will cause the cost per unit of output to fall
labour productivity
Labour productivity gives us the quantity of output produced by each worker in a given period
Labour productivity = output / labour employment
how to increase labour productivity
Higher labour productivity = lower labour costs per unit
To increase:
- Invest in technology so employees have access to more equipment to help them complete their tasks more effectively
- Improve training of employees so staff have more skills to do their jobs
- Change the way the work is organised and the design of jobs to improve the flow of work and reduce time waiting to complete tasks
- Change the way employees are rewarded to provide more incentive
- Improve management
herzbergers theory of motivation
- Workers motivated to work harder by motivators eg more responsibility, more interesting work, more praise for good work
- Workers can become demotivated if hygiene factors are not met eg pay, working conditions, relationships with colleagues
capital productivity
Capital productivity gives us the quantity of output by each machine in a given period
Capital productivity = output / capital employed
how to increase productivity
- Increased training for employees
- Improved working conditions
- Incentive based payment schemes
- Increased mechanisation
- Division of labour
factors that influence productivity
- Physical capital: make labour more efficient and productive, investment in these new tech is important as most modern production and distribution systems need sophisticated computer systems → improvement in tech means improvement in productivity
- Human capital: education provides general skills, which are improved and refined by specialist training; qualified employees often need to update and improve their skills → human capital increases with relevant experience
- Organising resources more efficiently: reducing delays can reduce wasted time, improving employee organisation and productivity ]
- Linking productivity and competitiveness: when they increase productivity more can be produced using the same amount of resources
- Average costs fall and creates competitive advantage
- Allows firm to reduce prices, make quality improvements or increase profitability
- Maintains international competitiveness, and R and D projects can increase this further
- Productivity and wages: increased prod means increased wages, and employees can add more value. Wages can be increased due to production targets (Bonuses)
- Productive employees can command higher wages when applying for new jobs
- Productivity and economic growth: supply of customer goods increased as business becomes more productive -> costs and prices may fall ut standard of living and real incomes increase, prod is needed in economic growth
- Involves structural change → some employees will be made redundant and will need new jobs where demand is growing
An increase in productivity means an increase in output, but an increased output does not always mean an increase in productivity
capital vs labour intensive and economies
- More advanced an economy, more capital intensive it becomes
- Labour intensive production is associated with developing countries, where labour is cheap and plentiful, but also in service sectors of developed countries, where machines cannot replace human input
capital intensity and labour intensity and firms
problems with capital intensity
- Measures how heavily a firm relies upon capital inputs (machines) in comparison to other outputs such as labour
- If a firm has a large number of machines and a relatively small number of workers, it is said to be capital intensive
If the opposite is true, it is labour intensive - Capital intensive production is very expensive in terms of initial set up and is only appropriate for products that have a high, regular demand
- It is only suitable where high levels of finance can be obtained
C/L intensity in the long run
- Capital equipment becomes more efficient as tech improves
- Investing in labour saving equipment and CI cuts costs of production and increases labour productivity → can increase wage rates and cut prices at the same time
downside to C intensive production
- Tools and machinery may become obsolete
- Failure to upgrade may mean losing competitive advantage
- New investment in capital is needed
downside to L intensive production
- Skills may no longer be needed
- Retraining is often necessary
- New investment in human capital is needed
