What is labour productivity?
- Productivity is a measure of the efficiency with which resources, both human and material, are converted into goods and services. Besides land and capital, labour productivity plays a crucial role in deciding the rate of economic growth.
- Labour productivity is crucially dependent on businesses investing in knowledge and innovation even as the governments bring about structural reforms that enable such investments to bear fruit.
Analysis by India Ratings and Research on India’s labour productivity growth in the organised manufacturing sector:
- Between 2004 and 2008, India’s labour productivity grew by over 14 % every year. But between financial years of 2011 and 2015, this rate fell to just half of that (7.4 %) and continued its deceleration to just 3.7 % between financial years of 2016 and 2018.
- Between financial years 2001 and 2018, the capital intensity — that is, fixed capital used per worker — in India’s organised manufacturing has been rising. But the output intensity — that is, the value of output per fixed capital — has actually declined over the same period.
- In other words, while more and more capital is being used per unit of labour, it is not yielding commensurate level of output growth.
