Productivity

Topic: Human Capital: Education, Health and Demographic Dividend · NCERT: Class 8, Ch 7 "Factors of Production"

Meaning

Productivity is the amount of output produced from each unit of input, such as per worker or per hour, in a given period.

Formula: Productivity = Total output ÷ Units of input

It shows how well inputs are used, not just how much is produced. When productivity rises, a country can produce more goods, pay higher wages and raise living standards without using more workers or resources.

Explanation

How it works

• Productivity is a ratio. It divides output by the input used to make it.
• Labour productivity is the form most often tested. It measures output per worker, or output per hour worked.

• Formula: Labour productivity = Output ÷ Number of workers (or ÷ total hours worked)

• The input can also be land, such as output per hectare, or capital, such as output per machine. The idea stays the same: output divided by input.

• Key point: a country can raise total output by adding more workers. Productivity rises only when each unit of input produces more.

Worked example: tailors before and after training

• Before: 10 untrained tailors work 8 hours a day and stitch 400 shirts.
• Output per worker = 400 ÷ 10 = 40 shirts

• Output per hour = 400 ÷ (10 × 8) = 5 shirts per hour

• After a skill course: the same 10 tailors stitch 520 shirts in the same hours.

• Output per worker = 52 shirts

• Output per hour = 6.5 shirts per hour

• Rise in labour productivity = (52 − 40) ÷ 40 = 30%

• There were no new workers and no new machines. The whole gain is the return on human capital (the skills, knowledge and health built into people).

What makes it rise

• Skills and education: an educated worker picks up new technology faster and produces more.

• Training (learning the skills for a particular job) turns classroom theory into job-ready skill.

• Good health:

• Healthy children attend school regularly and learn better.

• Healthy workers do more in less time, are more creative and miss fewer days through illness.

• Technology and physical capital: better machines and methods raise output per worker.

• Work culture:
• Japan's kaizen ("continuous improvement"), used since the mid-1940s, helped raise its living standards.
• Germany's punctuality and attention to quality helped make it a leader in manufacturing.
• So skills turn into output only when good work habits go with them.

What makes it fall or stay low

• Stunting means being too short for one's age because of long-term poor nutrition. It limits thinking and physical ability for life, so the future worker produces less.
• Poor learning: years spent in school without real learning add little skill.
• Unused skills: if trained people have no jobs, their possible productivity is lost to the economy.

In India

• Human Capital Index (HCI): a World Bank index on a 0–1 scale, first launched in 2018 [2]. It works as a measure of future productivity.
• India scored 0.49 (2020). This means a child born in India will be only 49% as productive as they could be with complete education and full health [2].

• The global average was 0.56 [2].

• Learning gap: Indian children get 11.1 expected years of school but only 7.1 learning-adjusted years (2020) [2].

• About 4 years of schooling add no skill. That means lower productivity later.

• Health drag:

• 35 out of 100 Indian children under 5 were stunted (HCI 2020) [2].
• Government health spending was 1.0% of GDP (2017) [2].

• The Economic Survey 2020-21 recommended raising it to 2.5–3% of GDP [5].

• Training gap:

• Fewer than 5% of 19–24-year-olds received formal vocational education in 2012–2017 [3].

• NEP 2020 aims to give at least 50% of learners exposure to vocational education by 2025 [3].

• Skills built but not used:

• Only 48% (2018) of the working-age population was employed [2].
• Female labour force participation was 23% (2017) [2].

Don't confuse with

• Production: production is total output, for example 520 shirts. Productivity is output per unit of input, for example 52 shirts per worker. Hiring more workers can raise production while productivity stays the same.
• Labour: labour is the amount of effort, such as 8 hours of work. Productivity is how much that effort produces. Two workers can each give 8 hours and still differ in productivity.
• Human capital: human capital is the stock of skills, knowledge and health in people, and it is an input. Productivity is the result that human capital helps to raise.
• Labour productivity vs productivity in general: labour productivity divides output by workers or hours only. Productivity in general can divide output by any input, such as land or capital.

Prelims Hooks

• Productivity = Total output ÷ Units of input. Labour productivity = Output ÷ Number of workers (or ÷ total hours worked).
• Education, training and good health are the three facilitators of human capital (Class 8). All three raise productivity.
• The World Bank publishes the HCI. India's score of 0.49 (2020) means a child born today will be only 49% as productive as with full education and health [2].
• LAYS = EYS × (HTS ÷ 625). For India: 11.1 × (399 ÷ 625) ≈ 7.1 years [2]. Low LAYS signals low future productivity.
• Kaizen is the Japanese idea of "continuous improvement". It links work culture to productivity.
• Trap: "More labour hours always mean higher productivity." This is false. More hours raise output, but productivity rises only when output per hour or per worker rises.

Mains Points

• Learning, not just enrolment, drives productivity: India has 11.1 expected but only 7.1 learning-adjusted school years, and 55% learning poverty (2017) [2]. So the productivity problem is mainly one of quality.
• This supports foundational literacy and numeracy, and better teachers.

• NEP 2020 makes a 4-year integrated B.Ed. the route into teaching and asks every teacher to do 50 hours of professional development each year [3].

• Health spending is a productivity investment: 35% stunting [2] and public health spending of 1.0% of GDP (2017) [2] reduce future output per worker.

• The Economic Survey's 2.5–3% target [5] and the government's rising share in total health spending, from 29.0% (FY15) to 48.0% (FY22) [4], should be read as investment in workers, not as welfare cost.

• Demographic dividend needs jobs as well as skills: a 48% employment ratio (2018) and 23% female labour force participation (2017) mean much of the productivity India builds goes unused [2].

• Skilling through vocational education [3] must be matched by job creation and more women at work. Otherwise the gain stays on paper.

Related concepts

• Human resource
• Human capital
• Skill
• Labour productivity
• Facilitators of human capital
• Continuous improvement

Read more

• People as a resource: from human resource to human capital