Labour Productivity

Labour productivity is often seen as the single most important measure of how well a firm’s workers are doing.  It compares the number of workers with the output that they are producing.  The management of human resources may lead to an improvement in labour productivity.  It is expressed using the following formula:

If a t-shirt manufacturer employs 10 people per day and it is able to make 300 t-shirts, then the productivity is 30 t-shirts per person per day (300¸10).

At its most basic level, the higher the productivity of the workforce the better it is performing.  Any increase in the productivity figure suggests an improvement in efficiency.  Lean production systems look for the greatest outputs from the least inputs.  Firms will attempt to increase their output (production) using the same or fewer resources (labour).

The importance of labour productivity lies in its impact on the labour costs per unit. 

The productivity of Margetts t-shirt manufacturer is able to achieve lower labour costs per unit due to its higher labour productivity, therefore greater competitiveness both here and against international rivals.  This will be true for all firms, particularly those firms where labour forms a large part of the total costs.  Even capital intensive firms who improve their labour productivity will find that their competitiveness improves.

It is important to distinguish between productivity and total output.  By hiring more employees it is able to increase total output, but this doesn’t necessarily mean that productivity has risen.  Similarly it is possible to have less total output coupled with an increase in productivity.  This occurred in the UK in the early 1990 as firms faced with high interest rates, a strong pound and a recession, many companies were forced to rationalise their operations.  Many workers were made redundant and those who remained had to increase their productivity in order to keep their jobs.

Labour Turnover

This is a measure of the rate of change of a firm’s workforce, it is measured using the following formula:

So a firm which has 20 people leave out a total staff of 80 has a labour turnover or 25% (80¸20).  It is important to look at how these figures have changed over a number of years rather than look at them in isolation.

Causes of labour turnover

If the labour turnover rate is increasing, it may be a sign of increasing dissatisfaction within the workforce.  These causes may be either internal or external.  Internal reasons could be:

• A poor recruitment and selection process that leads to a person being placed within a job that they are not suited to.  Eventually that person will leave to find a job more suited to them.
• Ineffective leadership or motivation will leave employees with a lack of commitment to the firm.  They will feel no sense of loyalty to the business, and they will tend to look elsewhere for promotions or new opportunities.  They will not be interested in looking for new ways in which they could contribute to the firm.
• Wages that are lower than those being earned by similar workers in local firms.

External causes could be as follows:

• More local vacancies arising, perhaps due to the setting up or expansion of other firms in the area.
• Better transport links making a wider geographical area available to workers.

Consequences of high labour turnover

There can be both negative and positive effects.  The negative aspects could be:

• The cost of recruitment of replacements
• The cost of retraining of replacements
• The time taken for new recruits to settle into the business and adopt the firm’s culture.
• The loss of productivity while the new workers settle in.

Labour turnover can however have some positive aspects:

• New workers can bring in new ideas and enthusiasm
• Workers with specific skills can be employed rather than having to train existing employees.
• New ways of solving problems can be seen by new workers who can offer a different perspective.

On balance there is a need for firms to achieve the right level of labour turnover rather than the lowest.

Absenteeism

Absenteeism measures employees miss work as a percentage of the total number of employees, it is calculated using the following formula:

If a firm employs 50 people and on one day 4 people are absent, the the absenteeism rate for that day is 8% (4/50 ´ 100).  In order to calculate the absenteeism rate for a year it is necessary to calculate the total number of days that should have been worked. 

Causes of absenteeism

Aside from genuine illness, the main causes of absenteeism are failures of the firm’s human relations systems (part of HRM).  Often these can be linked to Herzberg’s hygiene factors, such as:

• Poor working conditions, making workers uncomfortable or even causing injury.
• A failure to respect individuals and to be concerned with their needs.
• A failure to respect individuals and be concerned with their needs.
• A failure of teamwork, leading to feelings of alienation or even bullying.
• Over supervision, leading to stress or the feeling of not being trusted.
• Inappropriate tasks, leading to stress as workers are unable to complete their tasks satisfactorily.
• Pay rates that the employees feel are too low for their skills.

The costs of absenteeism

For a firm the costs of absenteeism can be very high:

• Lost production as the worker is unable to catch up with the work that was missed.
• It maybe necessary to offer extra overtime in order to complete an order on time.  This will increase the costs of the firm and lower their overall profits unless they can raise the price to compensate.
• If workers sense that there is a trend of absenteeism, they will tend  to take more days off themselves, this will lead to the problem snowballing

Measures to reduce absenteeism

When a firm is faced with high levels of absenteeism it will look to the HRM department for remedies, such as:

• Flexitime – allows workers some degree of control over the hours they are at work.  It can help to relieve pressures caused by such things as child care and transport problems, which would otherwise lead to workers taking time off as though they were sick.
• Job enrichment – a satisfying, challenging job will ensure that workers will want to go to work.
• Improved HRM – making workers feel more valued will allow people to feel more committed to the workforce.  Employees who feel part of a team will not want to let others down.
• Attendance bonuses – these are paid to workers who attend regularly.  This is a controversial idea, recent studies have shown that they may not actually increase attendance.