Labor productivity, or how to «hack» economic growth

20.09.2023

This is the Blog of Ruslan Sultanov, Chairman of the Board of our Institute.


I'm pleased to welcome you to my blog, where we'll discuss essential economic matters not in the formal halls of conferences but right here, in the digital space of the Institute of Economic Research in Kazakhstan. Our goal is not only to keep you informed about current topics and positions but also to create a place where each of you can contribute to the global economic conversation. Let's shape the future together!

Ruslan Sultanov
Chairman of the Board
JSC “Institute of Economic Research”




Labor productivity, 
or how to «hack» economic growth

The answer is simple: YOU HAVE TO WORK MORE! (Spoiler alert - No)

A country's economy is a highly complex, multi-level mechanism, encompassing all companies from the smallest stalls to large corporations. Recently, labor productivity, in addition to GDP, has been increasingly used to assess the level of economic development. Labor productivity determines how efficiently a country utilizes the resources for producing goods and services, serving as a measure of economic growth, competitiveness, and living standards.

As a simple example, consider one barrel of oil. It can be sold in its crude form for a little over 80 U.S. dollars. Taking production costs into account, your profit would be about 30 U.S. dollars. However, from the same barrel of oil you can produce approximately 100 liters of 95-octane gasoline. With the average global price of 1.34 USD per liter, this translates to 134 USD for the same barrel, and the profit, including processing and transportation, would be around 50-60 USD.

But there's more! From one barrel of oil you can also obtain approximately one-third of a ton of PET plastic. Here, the prices vary significantly - when processed and sold as sheets, it can fetch prices ranging from 600 to 1000 dollars for this one-third of a ton. Do You see the difference?
Labor productivity is the amount of goods and services that a group of workers produce in a given period of time (in the calculations above, it is per hour). 

Productivity often provides a more accurate indication than output dynamics, and the trend can tell us a lot about the economy's development. When productivity is increasing, the economy tends to grow. Labor productivity is a secret many people seek, as this indicator applies not only to a nation's economy but also to individual enterprises, industries, and production.

Low productivity stands as one of the primary causes of the phenomenon known as the 'working poor.' These individuals work long hours, often in informal or household settings, yet earn extremely low incomes.

The labor productivity improvement indicator represents the growth in added value resulting from a more rational and coherent approach to production. This outcome can be achieved when employees work more efficiently, quickly, and skillfully, often in conjunction with production modernization, defect reduction, or the introduction of technological innovations.

It's important to differentiate between labor productivity and labor quality: labor quality is primary, constituting an internal essential property, while productivity is an external outcome, stemming from the labor process and based on the enhancement of its quality.

Analyzing and calculating labor productivity enables us to identify weaknesses and assess growth potential, whether for a specific sector of the economy, an enterprise, or the entire country's economy. This is why we are launching a series of posts on #laborproductivity. These posts will cover global statistics, international experiences, the situation in Kazakhstan, and, ultimately, provide conclusions and recommendations for enhancing and increasing labor productivity efficiency in the country.

See you soon!




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