Productivity (Edexcel IGCSE Business)

Calculating productivity

Spec point — 5.2.1 · calculation of productivity

• Productivity is the output per person during a given time period

  • E.g. an IKEA worker is able to produce 2 Poāng chairs per hour

• Productivity is expressed as a number of units and is calculated using the formula

$\frac{\mathrm{Total} \mathrm{output}}{\mathrm{Number} \mathrm{of} \mathrm{workers}}$

Worked Example The table shows the number of pairs of luxury wool socks produced by Sokkemani Ltd in 2021 and 2022.

Year	Units Produced
2021	46,000
2022	69,000

In 2021 Sokkemani Ltd employed 50 staff. In 2022 the number of staff employed by the business increased by 20%.

Calculate the percentage change in productivity between 2021 and 2022.

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Step 1 - Calculate productivity for 2021

$=\frac{46,000\mathrm{units}}{50\mathrm{workers}}\,\,=920\mathrm{units} \mathrm{per} \mathrm{worker}$ (1 mark)

Step 2 - Calculate productivity for 2022

$\frac{=69,000\mathrm{units}}{60\mathrm{workers}}\,\,=1,150\mathrm{units} \mathrm{per} \mathrm{worker}$ (1 mark)**

Step 3 - Calculate the percentage difference between the two years ((new-old) / old)

$= \frac{ 1 , 150 - 920 units}{920 units} \times 100

= 25 %$** (1 mark)

Step 4 - Identify whether the percentage difference is an increase or decrease

• Labour productivity has increased from 920 to 1,150 units so it is a 25% percentage increase (1 mark)

Exam Hint You should always include your full working in calculation questions. You may be awarded marks for substituting correct numbers into a formula, even if your final answer is incorrect.

Ways to increase productivity

• The higher the level of productivity, the lower the average total costs

  • With lower average costs a business could choose to reduce selling prices to attract customers or make higher levels of profit

Methods of increasing productivity

The Impact of productivity improvements

Spec point — 5.2.1 · the impact of productivity improvements.

• Businesses that increase their level of productivity are likely to be more competitive

  • Competitiveness refers to the ability of a business to maintain or grow its sales and market share given the presence and actions of rivals

Productivity and competitiveness

*There is a strong link between productivity & competitiveness   *

• Businesses that are competitive are likely to have the financial resources required to continue investing in improvements to their productivity such as

  • Purchasing more technology and upgrading manufacturing equipment
  • Improving staff training and recruiting skilled workers
  • Moving to larger premises

• Customers benefit if reduced costs resulting from higher productivity lead to lower prices

  • Product quality and customer service may also be improved if the production process is more efficient, leading to an improved reputation and greater customer loyalty

• Higher levels of productivity can motivate workers if they are rewarded for higher levels of output

  • E.g. workers may receive a bonus linked to their output

• However, higher levels of productivity may create difficulties for workers

  • If increases in productivity are achieved through the use of new machinery, some may lose their jobs
  • Employees may feel pressurised to increase their output and could feel overworked