An increase in labour productivity does not indicate an increase in the skills and knowledge of labour.

Introduction

Labour productivity refers to output per hour of labour.

Many students think that an increase in labour productivity indicates an increase in the skills and knowledge of labour. This is an economic misconception which will be discussed in economics tuitionΒ at Economics Cafe Learning Centre.

Exposition

An increase in the skills and knowledge of labour will lead to an increase in labour productivity. When workers become more skillful and knowledgeable, the amount of output produced with one hour of labour will rise resulting in an increase in labour productivity. The skills and knowledge of labour may increase due to education and training which will lead to greater human capital. Many governments provide education and training directly, by setting up educational institutes, and indirectly, by giving subsidies or tax incentives to firms to induce them to send their workers for education and training. Although an increase in labour productivity may be due to an increase in the skills and knowledge of labour, this is not always the case. There are various factors which will lead to an increase in labour productivity. Apart from an increase in the skills and knowledge of labour, an increase in the efficiency of capital will also lead to an increase in labour productivity. When workers are equipped with better production technologies, the amount of output produced with one hour of labour will rise resulting in an increase in labour productivity. This is true even if the skills and knowledge of labour does not increase. The efficiency of capital may increase due to research and development whichΒ will lead to technological advancement. Many governments engage in research and development directly, by setting up research institutes, and indirectly, by giving subsidies or tax incentives to firms to encourage them to engage in research and development. A good understanding of labour productivity is of great importance in the Singapore-Cambridge GCE β€˜A’ Level economics examination. This is particularly true in view that the Singapore government has been restructuring the economy to one that is more productivity-driven in order to improve economic performance.

 

economics tuition, back to homepage

Economics Tuition SingaporeΒ @ Economics Cafe
Principal Economics Tutor: Mr. Edmund Quek