Labor productivity may seem like an obscure idea meant for economists at the Bureau of Labor Statistics. But in today’s competitive work environment, organizations that want to set themselves apart need to learn how to measure and improve it. Understanding how much work your employees perform in a set amount of time gives you insight into how your company is performing and what your employees need to perform their best.
Labor productivity is more than just how many hours employees work. It’s not just about working harder, but helping employees work smarter. It involves optimizing processes while keeping employees engaged, motivated and healthy.
Keep reading to find out more about labor productivity, what it means for organizations and how to measure and improve it.
What is labor productivity?
In its most basic form, labor productivity refers to how much output is produced in a set amount of time. For economists, this means how much gross domestic product (GDP) is produced by an hour of labor across an entire country. Organizations measure labor productivity by the number or value of goods or services produced in a set amount of time, typically an hour. Calculating this metric shows how effectively a business uses its workforce. Understanding labor productivity helps determine a company’s growth, profitability and overall organizational success.
Why is it important to measure labor productivity?
Measuring labor productivity helps your business understand if you’re using your workforce to its full potential. High labor productivity indicates your employees have the right tools, training and environment to work efficiently. On the other hand, low labor productivity indicates process inefficiencies, burnout or training gaps.
Measuring labor productivity informs decisions to drive growth. If you find you’re using your workforce to its full potential, you may look to increase headcount to continue growing. However, if your labor productivity is low, your growth strategy should center on helping your existing workforce work more efficiently rather than hiring more people.
Key factors influencing labor productivity
Several factors influence labor productivity. Most are within an organization’s control, but there are some an organization can only react to, such as economic issues.
- Technology: Technology should streamline processes and reduce manual tasks, allowing employees to focus on higher-value activities. Ensure your tech stack serves employees’ needs through automation and ease-of-use and doesn’t frustrate or distract employees.
- Training and development: Employees need the right skills to complete their work effectively, and development programs go a long way in increasing employee satisfaction. Keeping an eye on employee skill levels and investing in training programs helps boost employee productivity.
- Organizational culture: A positive work environment that fosters collaboration, innovation and open communication significantly boosts employee motivation and productivity.
- Employee well-being: According to research, employees who feel valued and supported are more likely to be engaged and productive. Organizations that invest in initiatives like flexible work arrangements, mental health resources and wellness programs tend to have more productive employees.
- Market demand: While the overall economy may be out of a company’s control, organizations prepared to reassess workforce strategies and stay agile during changing conditions are more likely to survive economic storms.
How to calculate labor productivity
To calculate labor productivity, choose from two options — the manual labor productivity formula or productivity measurement software.
1. Labor productivity formula
To manually calculate labor productivity, you need to first define what “output” means for your organization or industry. In single-item manufacturing, for example, it’s easy to count how many products are produced in an hour. If your company manufactures more than one product or if you provide a service, “output” is defined as the monetary value of those products or services when they’re sold. To calculate this, you also need to separate changes in pricing from overall revenue.
Once you’ve defined output, use this formula:
Total output/total labor hours = labor productivity
This formula may greatly oversimplify actual worker productivity at your organization. For example, the formula doesn’t necessarily include work quality, which affects productivity. However, it’s a relatively easy way to track labor productivity if you just want a basic understanding of how efficient your employees are.
2. Productivity measurement software
Productivity measurement software provides a more detailed view of labor productivity than the manual calculation method. For example, ActivTrak automatically tracks metrics around hours worked and output. It then correlates these inputs with other data like employee engagement or burnout risk. The software makes it easy to track labor productivity for individual employees, teams and the entire organization in one place. Additionally, productivity management software shows you trends over time and how your workforce productivity compares to historical or industry benchmarks.
Strategies for enhancing labor productivity
Looking to boost labor productivity? Here are a few proven approaches that work across industries:
1. Invest in employee training and development
Investing in employee training programs not only enhances skills but also increases job satisfaction and retention rates. Organizations that prioritize employee development often see a direct correlation with productivity improvements.
2. Leverage technology and automation
Finding the right technology and tools for your organization significantly improves employee productivity. Invest in core technology and tools, such as project management, collaboration, communication, data analytics, and others, to streamline workflows and automate repetitive tasks.
3. Foster a positive work environment
Organizations should focus on creating a work culture where employees function effectively. This includes physical environmental factors like temperature, lighting and noise levels as well as organizational values like transparency, collaboration, accountability and growth.
4. Prioritize employee well-being
Employee health and well-being significantly impacts productivity across teams and departments. Provide employees with the necessary resources to safeguard their mental and physical health, including paid time off, flexible work arrangements or remote work options, as well as comprehensive health benefits and fitness programs.
5. Prepare for economic changes and maximize flexibility
Ensure your organization is prepared for economic market changes by building flexibility into your workforce. Leverage historical data and predictive analytics to create plans for anything from economic downturns to sudden increases in demand to keep your labor productivity high in any circumstance.
Measure and improve labor productivity with ActivTrak
Measuring, understanding and boosting labor productivity is essential to drive your organization’s success. Get the insights and tools you need to measure, manage and enhance workforce productivity with ActivTrak. Our productivity management solution gives you actionable insights for every aspect of productivity, from hours worked to overall output to markers of employee well-being. Request a demo to see how ActivTrak simplifies labor productivity tracking and provides the insights you need to stay competitive.
