Labour productivity is the most frequently computed productivity indicator. It represents the volume of output produced per unit of labour input. The ratio between output and labour input depends to a large degree on the presence of other inputs, such as physical capital and increasingly intangible fixed assets used in production, and technical efficiency and organisational change. Labour productivity is a key dimension of economic performance and an essential driver of changes in living standards.
OECD Compendium of Productivity Indicators 2018
In countries with relatively low labour productivity levels, stronger labour productivity growth over the last two decades has helped to reduce the productivity gap, especially in many Eastern European economies and Korea. However their labour productivity levels remain below the OECD average and post crisis rates of convergence have slowed. Labour productivity growth has also been relatively weak in the United States and in some large European economies – Italy and the United Kingdom – compared with the OECD average. In Ireland, corporate restructuring, including through the relocation of firms with significant intellectual property assets and aircraft leasing companies, led to significant increases in GDP and labour productivity in 2015, leading to the highest annual post-crisis labour productivity growth rate among OECD member countries (6.2%).
Definition
Labour productivity is defined as GDP per hour worked. GDP is measured as gross value added in market prices. For international comparisons of labour productivity levels, the series of GDP in national currency and at current prices are converted to a common currency, US dollars, using current Purchasing Power Parities (PPPs). Growth rates of labour productivity, instead, are based on measures of GDP in national currency and at constant prices.
In productivity analysis, and ignoring quality differences for the moment, labour input is most appropriately measured as the total number of hours actually worked, this is, effectively used in production, whether paid or not (System of National Accounts 2008, 2008 SNA, 19.47). Hours actually worked reflect regular hours worked by full-time and part-time workers, paid and unpaid overtime, hours worked in additional jobs, excluding time not worked because of public holidays, annual paid leaves, strikes and labour disputes, bad weather, economic conditions, among other reasons (Chapter 7. ).
Information on data for Israel: http://dx.doi.org/10.1787/888932315602.
Comparability
GDP measures follow the 2008 SNA, except for Colombia, which follows the 1993 SNA, and for the Russian Federation, which follows the 1993 SNA (data up to 2010) and the 2008 SNA (from 2011 onwards) (Chapter 7. ).
In most countries, the primary source for measuring hours actually worked is their labour force survey. However, several countries rely – only or in addition – on establishment surveys and administrative sources (Chapter 7. ). The use of different sources may affect the comparability of labour productivity levels but comparisons of labour productivity growth are less likely to be affected.
In practice, the effective quantity of labour input depends not only on the total number of hours actually worked but also on the education, working experience, business functions and other worker characteristics. The measure of labour input used in this publication, i.e. total hours worked, does not account for the composition of the labour force and likely underestimates the effective use of labour in production affecting cross-country comparability.
Sources and further reading
OECD Productivity Statistics (database), http://dx.doi.org/10.1787/pdtvy-data-en.
Ahmad, N., et al. (2003), “Comparing Labour Productivity Growth in the OECD Area: The Role of Measurement”, OECD Science, Technology and Industry Working Papers, No. 2003/14, http://dx.doi.org/10.1787/126534183836.
OECD (2001), Measuring Productivity – OECD Manual, http://dx.doi.org/10.1787/9789264194519-en.
GDP per hour worked, total economy, US dollars, current prices and current PPPs
GDP per hour worked, total economy, percentage change at annual rate
