Productivity

Productivity is how much output is produced per worker. It is often measured as output per worker per period, such as output per person per hour or per week, so it shows how efficiently labour is used to make goods or provide services.

Measuring productivity

Divide total output by the number of workers, or by the total hours worked. A garden bench workshop with four staff making 80 benches a week has productivity of 20 benches per worker per week. If those four staff work 160 hours in total, productivity is 0.5 benches per hour.

Productivity is not the same as total output. Making 200 benches with 10 staff may give the same productivity as making 80 with four staff, even though total output is much higher.

How productivity rises

Productivity increases when the same workers produce more output in the same time, or when the same output is produced with fewer resources. If the workshop makes 100 benches with four staff, productivity rises to 25 benches per worker. If it still makes 80 benches but with three staff, productivity has also risen, to about 26.7 benches per worker.

Why it matters for price and profit

Higher productivity helps keep unit costs down because wages and overheads are spread over more output. The business can set competitive prices and still protect its profit margin, the gap between price and cost per item. If it lowers prices to win customers, lower unit costs help stop that gap shrinking too much.