A:

Productivity measures the efficiency of a company's production process. It is calculated by dividing the outputs produced by a company by the inputs used in its production process. Common inputs are labor hours, capital and natural resources, while outputs are generally measured in sales or the amount of goods and services produced. Productivity can be calculated by measuring the amount of units produced relative to employee labor hours or by measuring a company's net sales relative to employee labor hours.

## Calculating Labor Productivity

Overall employee labor productivity is calculated by dividing the goods and services produced by the total hours a company's employees during a certain period of time. For example, suppose a manager wants to calculate the productivity of all the employees at his company. The manager calculates that the company had an output of 30,000 units last month, while its input was 3,000 hours of labor. The productivity for the company is 10 (30,000 divided by 3,000); this means the employees produced 10 units per hour in the previous month.

## Measuring Productivity Using Total Sales

Another common way to measure a company's labor productivity level is to divide the total sales by the total amount of hours worked. For example, company ABC had net sales of \$15 million and its employees worked a total of 20,000 hours over the last fiscal year. The output is the company's net sales and the input is the number of hours. The productivity of the company is \$750 (\$15 million divided by 20,000). This means for each hour of labor, company ABC's employees produced \$750 in sales.

(For related reading, see: Why is productivity an important concept in economics?)

RELATED FAQS

2. ### How do companies measure labor supply in human resources planning?

Find out how and why a company's human resources department would measure labor supply, and what policies would address a ... Read Answer >>
3. ### What's the difference between diminishing marginal returns and returns to scale?

Understand the main differences between the law of diminishing marginal returns and the concept of returns to scale through ... Read Answer >>
4. ### What are the main income statement ratios?

Learn how to calculate and interpret some of the most common and insightful financial ratios, like earnings per share, from ... Read Answer >>
Related Articles

### Are We Becoming 24-Hour Workers?

Many employees are working more than 40 hours a week, and even when they’re not physically at work, they’re still mentally and digitally connected.
2. Personal Finance

### The Benefits of Salary Vs. Hourly Wages

Going from an hourly position to a salaried one often comes with a big pay raise. But there are some things to think about before celebrating.
3. Managing Wealth

### Does a Shorter Work Week Lead to Greater Productivity?

While technology has significantly increased labor productivity, institutional changes, such as a shorter work week, could also be very productive.
4. Investing

### Key Financial Ratios for Manufacturing Companies

An investor can utilize these financial ratios to determine whether a manufacturing company is efficient, profitable and a good long-term investment option.
5. Personal Finance

### Salary versus hourly: How benefits and laws differ

Before you decide on hourly pay versus salary, you should consider the pros and cons and be aware of how changing laws could affect you.
6. Insights

### One Reason Jobs Shrink: Superstar Companies

Are superstar companies that dominate their industries but employ relatively few workers to blame for labor’s falling share of GDP?
7. Insights

### Why \$15 Minimum Wage Might Not Be Good News for Anyone (MCD, DPZ)

Discover why the minimum wage isn't the panacea it is made out to be, and how artificial wage increases strain businesses and consumers.
8. Personal Finance

### Top 10 Highest-Paying Retail Jobs

Find out where to find the top 10 highest-paying retail jobs in the country, and what the top retailers are paying their sales associates.
RELATED TERMS
1. ### Aggregate Hours

Aggregate hours refer to the total sum of hours worked by all ...
2. ### Revenue Per Employee

Revenue per employee is an important ratio that looks at a company's ...
3. ### Production Cost

Production costs are costs incurred by a business when manufacturing ...
4. ### Organized Labor

Organized labor is an association that engages in collective ...
5. ### Employee Engagement

Employee engagement is a human resources concept that describes ...
6. ### Back Pay

Back pay is the amount of salary and other benefits that an employee ...
Hot Definitions
1. ### Futures Contract

An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
2. ### Yield Curve

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
3. ### Portfolio

A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
4. ### Gross Profit

Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
5. ### Diversification

Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
6. ### Intrinsic Value

Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...