Pages Navigation Menu

Develop Your Strategic Mindset and Deliver Results

Four Causes of Deteriorating Labor Productivity

Four Causes of Deteriorating Labor Productivity

Labor is the human capital which is necessary for any business to flourish. However, if labor is not productive, productivityhiring them would only increase business costs. This article highlights some factors of why labour productivity in a firm declines.

Some people hold the assumption that if businesses hire more workers, they tend to be more profitable and produce higher output. Entrepreneurship experts and consultants declared this assumption as incorrect because they realize the importance of labor productivity in a business. Labor productivity is defined as the rate of output produced per worker or per labour hour. High labour productivity means that the worker is contributing a high output quantity. Therefore, two workers with a high productivity are financially better for a business than three workers with low productivity because in both cases output will be equal but business will incur less wage cost if two workers are hired.

Since labour productivity is so important, it is necessary to know the factors of why labor productivity falls in a business:

Insufficient Skills: This is the most common factor of low productivity because it is quite obvious that if a person lacks skills required to do the job, he will be inefficient at it. Moreover, if we take an example of a worker producing a shirt, he will produce fewer units per hour than a skilled worker can. A good solution to this could be the retraining of existing labor instead of hiring new people. New workers will take time to understand business product(s) and operations but existing workers will already have a knowhow of what the business is and so polishing his skills will improve labor productivity.

Low Morale: Employee morale is defined as the attitude and satisfaction of the worker in an organization. Low morale means that an employee is not satisfied by the working conditions or environment and as a result he becomes inefficient. A survey showed that employees who are happy and satisfied with their job and profession i.e. a high morale have higher productivity at work and vice versa. Monetary and non-monetary incentives should be offered and working conditions must be improved in order to raise employee’s morale.

Personal Life problems: One reason of why managers and executives urge employees to move their attention away from personal problems is because these problems deteriorate efficiency significantly. It is common for employees to be less productive when they are going through personal family problems because they cannot focus completely on work.

Lack of understanding with higher level employees specially managers: When employees have poor relationship with manager, they tend to be inefficient in their work. This is because workers feel confident if they can communicate their problems and suggestions to managers without hesitation. Also, if workers feel that they are being neglected by managers and other high level officers, they become inefficient due to the absence of accountability. When businesses grow too much that it is difficult for employees to communicate with managers, this is known as diseconomies of scale and worker productivity declines.

About Stephen Henry

Stephen Henry completed his Master’s in business administration from Metro Business School and is working in the HR department of an Assignment Box senior regional manager which is a multinational firm for other information follow him on Google Plus.

One Comment


  1. Very good article, give me some inspirations word, and an idea to make evaluation of my staff.