How to Calculate Labor Productivity
Labor productivity equals real output divided by labor hours: divide total real output by the number of hours worked to get output per hour.
The Labor Productivity formula
Calculator
Enter real output and labor hours for two periods to get output per hour and the productivity growth rate.
Physical units, or output valued at base-year prices so inflation does not flatter it.
Hours worked by everyone over the period, not the number of workers.
Each hour of work produced 15 units in period 1 and 16.25 units in period 2.
- Labor productivity, period 2
- 16.25
- Productivity growth
- 8.33%
- Trend
- Rising productivity
The same formula applied to the later period, which is what makes the two comparable.
Output per hour changed by 8.33% between the two periods.
How to calculate Labor Productivity, step by step
- 1Measure real output. Count the physical units produced, or use output valued at base-year prices so rising prices do not inflate the result.
- 2Count total labor hours. Add up the hours worked by every worker over the same period, not the number of workers employed.
- 3Divide output by hours. Labor productivity = real output ÷ labor hours, which gives output produced per hour of work.
- 4Compare across periods. Take the percent change in output per hour between two periods to see whether productivity is rising.
Worked example: Labor Productivity
A bakery produces 12,000 loaves using 800 labor hours, so labor productivity = 12,000 ÷ 800 = 15 loaves per hour. The next period it produces 13,650 loaves using 840 hours: 13,650 ÷ 840 = 16.25 loaves per hour. Productivity growth = ((16.25 − 15) ÷ 15) × 100 = 8.33%.
Labor Productivity questions
Why does labor productivity drive economic growth?
Higher output per hour means each hour of work produces more, which shifts the production possibilities curve and long-run aggregate supply outward. Human capital, physical capital, and technology are the main sources of productivity gains.
Should you use output per worker or output per hour?
Output per hour is the better measure because it is not distorted by changes in hours worked per worker. Output per worker can rise simply because everyone works longer shifts.
Is labor productivity the same as the marginal product of labor?
No. Labor productivity is average output per hour across all labor, while the marginal product of labor is the extra output from one additional unit of labor.
Get AP Econ exam tips in your inbox
Occasional emails with study tips, new interactive graphs, and exam-season reminders. Free, no spam.
No spam. Unsubscribe anytime. Read our privacy policy.
Keep track of what you have studied
A free EconLearn account adds progress tracking, your quiz history, and achievements. Studying here is free either way, and there is nothing to pay for as a student.
Create a free accountAlready have one? Sign in
Last updated