How is productivity measured in the economy?

Labor Productivity Formula: How It Is Calculated

Every company wants to work as productively as possible: use its available resources optimally to achieve results. To measure the productivity of your employees, you can calculate their work productivity with a simple formula.

How do you use the Labor Productivity Formula? What significance does it have in practice and how do you deal with the results? In this article you will learn everything you need to know about the key figure.

Create smooth HR processes throughout the company and thus promote the productivity of your employees. Find out more here.

What is labor productivity?

Work productivity is a key figure that expresses the average work performance of employees over a certain period of time. More precisely, it shows the relationship between the labor input and the outcome, i.e. the result. This helps companies analyze in which areas measures to improve labor productivity should be developed.

Important: Labor productivity is a sub-area of ​​the overall productivity of your company. Another sub-area is, for example, machine productivity.

Labor productivity metrics

Labor productivity is used in controlling as well as in personnel and production planning. Depending on the scenario in which you want to use the formula, you can use different quantities for the calculation.

  • You can use, for example, a production quantity in units or weight, a number of completed orders or sales in monetary value as work performance. Any kind of measurable work results (“products”) are suitable.
  • You can choose any time period, from minutes to days to years.
  • You can use the labor productivity formula to get that Calculate work performance of individual employees or the average for a group of employees. In the latter case, divide the total work performance of the employees concerned by the total working hours.
  • At the economic level, the average productivity of employees in an entire industry, region or country can be calculated using the formula.

Efficient processes, higher productivity

HR makes a decisive contribution to employee productivity. Because when personnel processes are uncomplicated for everyone, your employees have more time for their actual work. Personio supports you!

How do you calculate labor productivity?

The formula for calculating labor productivity is:

The work result, measured in numbers (output),
divided by
the workload of employees, measured in time (input).

Represented as a mathematical fraction:

Practical examples

Using three examples for different industries and areas of activity, it is easy to show how the formula can be applied in practice.

Labor productivity in assembly line production
An employee produces 5,000 pieces of a product in an 8-hour working day.

Labor productivity = 5,000 products divided by 8 hours = 625 pieces per hour

Labor productivity in sales

Four sales employees generate a turnover of one million euros within one month (20 working days).

Calculation of the labor input: 4 employees * 20 working days = 80 working days

Labor productivity of the department = 1,000,000 euros divided by 80 working days = 12,500 euros per day

Labor productivity per employee = 12,500 euros divided by 4 employees = 3,125 euros per day per employee

Labor productivity in the service

15 cleaning staff clean a total of 3,000 hotel rooms within a week. The total of all hours worked is 4,000.

Average work productivity = 3,000 hotel rooms divided by 4,000 hours = 0.75 rooms per hour

Does it make sense to measure labor productivity?

The labor productivity figure is very easy to understand and calculate, but its informative value on its own is limited.

The formula for labor productivity does not take into account the costs for the employees, nor the machines, equipment and materials available to them. This means that no conclusions can be drawn about the causes of high or low employee productivity.

The same will be the Quality of work performance not recordedwhich often cannot be measured in numbers or other units of measurement. If an employee produces large quantities of products, many of which have defects, computationally high productivity is of no use to the company. The workload of the employees is also not taken into account. If production stops again and again due to a lack of orders, no profit can be made even with employees who are productive “on paper”.

You should therefore always keep labor productivity consider in context and in combination with other key figuresto get a meaningful overall picture of the productivity of your employees.

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For whom the formula is suitable ...

The formula for labor productivity is suitable for companies in which the work results can easily be measured in numbers or monetary units and the work results mainly depend on the working hours of the employees.

Especially in The code is used in areas with low-skilled jobs or piecework work, for example in logistics, agriculture or mass production. There it is relatively easy to set goals for the minimum work productivity of an employee and to compare employees with one another.

Unfortunately, some employers take advantage of productivity measurement to put pressure on employees and get rid of what they see as unproductive employees.

... and for whom not

In areas that employees primarily do “thinking” and are creative - that is it is difficult to measure the results of the work in numbers-, the formula for labor productivity has almost no meaningfulness. The same applies to highly automated production, where machines and computers do most of the work and the hours worked by employees have little influence on the results of the work.

This can be clearly seen from the fact that average labor productivity has increased slowly but steadily in Germany over the past few decades.

We Germans do not work faster every year than in the previous one, but technology has developed rapidly and processes are constantly being optimized. Labor productivity is less of a measure of employee performance than of the level of development of a company or an economy.

Why you should measure labor productivity

Like almost every key figure, labor productivity shows its true strength in comparison: either in a time comparison or in comparison with other companies (“benchmarking”).

Measure labor productivity in your company regularly over a longer period of time, for example every month or every quarter. The absolute number is less important. Rather, it is a matter of determining whether labor productivity is developing positively or negatively, or whether it is stagnating. You can also determine how certain measures affect work productivity, for example whether investments in new machines or more flexible working time models increase the productivity of your employees.

By comparing your work productivity with competitors or the industry average, you can determine whether they are competitive as a company. If your productivity is well below that of your competitors, this could be a sign that you have some catching up to do. However, only compare yourself with companies that are set up or structured similar to yours, so that the comparison is meaningful.

Interim conclusion

The calculated work productivity often says nothing about the real performance of the employees themselves. Low labor productivity can be caused by a variety of factors: unreliable machines, poor processes, health problems for employees and so on. Usually it is a mixture of many factors. If you notice poor or declining labor productivity, you should therefore carefully look for the causes and not jump to conclusions.

Increase work productivity: 11 tips

Realizing that your productivity is leaving something to be desired is only the first step. Develop suitable measures to increase the productivity of your employees. Remember: it's not just about numbers. Of course, sales or quantities are important. Most of all, however, you want employees who are permanently motivated and who do high-quality work.

You can increase the productivity of your employees with the following measures:

✓ Train your employees further

Well-trained employees perform better and make fewer mistakes. You develop your own ideas and can independently optimize your products and processes.

✓ Create incentive systems

In certain areas (but not in all) financial rewards or bonuses can have a motivating effect, as the higher performance of the employee has a direct effect on his wallet. A classic example of this is sales.

✓ Introduce standard processes

Define efficient and coordinated processes that everyone adheres to. Check your processes regularly and keep optimizing them.

✓ Promote good time management

Help your employees prioritize their time and avoid distractions.

✓ Provide ergonomic workplaces

Healthy employees who feel comfortable in the workplace perform better in the long term.

✓ Adhere to break and working times

Give your employees sufficient breaks, respect their after-work hours and weekends. This will keep you productive in the long term.

✓ Offer flexible working time models

If employees can adapt their working hours to their own needs and their biorhythm, they will be more motivated and productive during their working hours.

✓ Show appreciation

Employees who feel valued are more motivated and satisfied and perform better.

✓ Plan staff deployment and production

Ensure an even workload, avoid both idle times and overloading your employees.

✓ Automate processes

By using good software or the complete automation of processes, you relieve your employees, who can concentrate on important tasks.

✓ Measure employee data anonymously

Always keep an eye on the productivity of your employees. In this way you can identify changes and take early action to eliminate “productivity killers”.