Worker productivity and its relationship with economic growth

What’s in today’s article?

• Why in news?
• What is Worker productivity and labour productivity?
• Is there a direct link between worker productivity and economic growth?
• Does India have one of the ‘lowest worker productivity’ in the world?
• Are the comparisons of India’s economy with those of Japan and Germany economies apt?

Why in news?

• Infosys founder N.R. Narayana Murthy sparked a debate recently, urging young Indians to work 70 hours per week.
  • He cited Japan and Germany as examples of countries that grew because their citizens worked harder and for longer hours to rebuild their nations in the aftermath of the Second World War.
• He further noted that India’s worker productivity is one of the lowest in the world.

Worker productivity and labour productivity

• About
  • Productivity of an activity is usually measured as the quantum of output value per unit of labour (time) cost at a micro level.
  • At a macro level, it is measured in terms of the labour-output ratio or change in Net Domestic Product (NDP) per worker in each sector (where working hours are assumed to be 8 hours per day).
  • The only conceptual difference between the worker productivity and labour productivity is that:
    • the ‘work’ in worker productivity describes mental activities;
    • while the ‘work’ in labour productivity is mostly associated with manual activities.
• Challenges in measuring the value of the output
  • In certain types of services, especially ones involving intellectual labour, measuring the value of the output independently is very difficult.
  • In such scenario, the income of workers is usually taken as proxies to suggest productivity.
    • Therefore, according to many experts, the statement by Mr. Murthy, looks fallacious.
    • The only way this can happen is if the additional quantum of work done and output value produced has no commensurate pay.
    • And, if this happens, it will lead to increasing profits at the expense of the workers.
• Productivity is an attribute of skill, technology, innovations etc.
  • Productivity is an attribute not of time but of skill. Human capital including education, training, nutrition, health etc., enhances the ability of labour to become more productive.
  • In many cases, the reduction in the number of working hours does not hamper the value of output produced, but in turn enhances the leisure and quality of life of workers in real terms.
  • Also, technological changes and innovations have potential to increase the productivity without putting an extra hour at workplace.

Is there a direct link between worker productivity and economic growth?

• An increase in productivity made through any sector is likely to affect the value added and the accumulation or growth in the economy.
• However, experts believe, the relationship between the two could be quite complex.
  • For example, measurement problems related to nominal output and to output prices, as well as to labor input, nominal capital stock and capital stock prices, affect the accuracy of productivity measures.
• If by prosperity it is intended to suggest prosperity of the workers, this may or may not be true.
• This is because, the super-rich's prosperity is not solely due to hard work or productivity.
• Instead, it is connected to inherited wealth, called patrimonial capitalism, or arbitrary high salaries set by a select group, not based on their actual contributions.
  • This disconnect between hard work and earnings raises concerns about the fairness of the capitalist system.

Does India have one of the ‘lowest worker productivity’ in the world?

• As incomes are seen as a proxy for productivity, so there is a fallacious inference about productivity of workers in India being low.
• Wages and salaries have decreased while profits have gone up since the 1980s. This might be because of more informal jobs, changes in labour laws, and rules that are not favourable for workers.
• Many analysts have observed two facts about India:
  • Indians are among the most hard working employees in the world; and
  • India ranks one of the lowest in terms of average wages per month globally.

Are the comparisons of India’s economy with those of Japan and Germany economies apt?

• Comparing countries like Japan and Germany to India is not very helpful. They are different in terms of their workforce, technology, culture, and politics.
• India is unique, so comparing it randomly can lead to wrong conclusions and bad policies.
• Instead, it is better to invest in society, boost domestic spending, and focus on development that puts people first. This will lead to a better and lasting result.

Q1) What is meant by economic growth?

Economic growth is the process of a country's economy expanding over time. It is commonly measured by the rise in a nation's Gross Domestic Product (GDP).

Q2) What is Net Domestic Product (NDP)?

Net Domestic Product (NDP) is a measure of a country's economic output. It's calculated by subtracting the depreciation of physical capital from the Gross Domestic Product (GDP): NDP = GDP – Depreciation

Source: Understanding worker productivity and how it relates to economic growth | Explained