Productivity Myths and Trade Union Illusions Production Costs

Cape Times (South Africa), December 14, 2011 | Go to article overview

Productivity Myths and Trade Union Illusions Production Costs


IN THE article "Productivity is rising even as wage share dips, data show" yesterday, Dick Forslund argues that labour productivity in South Africa has risen sharply in recent years. He concludes, among other things, that "trade unions are gaining much too little in their fight for decent work conditions and higher wages".

Forslund's argument hinges on the output-per-unit-labour measure of productivity. If a firm produces 100 units using 100 workers, average output per worker is 1 unit (100/100). If, by installing a new machine or adopting a new technology, the firm produces 120 units with 80 workers, retrenching the other 20, average output per worker rises to 1.5 units (120/80), an increase of 50 percent. In this simple example, it is clear that the additional production was achieved, not by workers, but by the introduction of a new machine or technology. This is the labour productivity illusion: attributing to workers what is, in fact, attributable to capital or technology.

In contrast with Forslund's claims, the Organisation for Economic Co-operation and Development (OECD) defines productivity as "the ratio of a volume measure of output to a volume measure of input".

As such, labour productivity varies as a function of both other input factors (management, arable land, natural resources, physical capital, information and so on) and the efficiency with which the input factors are used. The US Bureau of Labor Statistics (BLS), which calculates productivity in the US, prefers the "marginal productivity" measure: the change in output that results from changing one of the inputs by one unit, all other factors remaining constant.

An exact statistical procedure for doing so is described on Adcorp's website. Using the OECD's and BLS's preferred methods, South Africa's labour productivity recently fell to the lowest level in 40 years. …

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