Understanding worker productivity

General Studies Paper 3

Context

• Infosys founder N.R. Narayana Murthy sparked a debate last week by urging young Indians to work 70 hours per week, citing Japan and Germany as examples of countries that grew because their citizens worked harder and for longer hours to rebuild their nations in the aftermath of the Second World War. He further noted that India’s worker productivity is one of the lowest in the world.

Worker productivity vs  labour productivity

• The only conceptual difference between the two is that the ‘work’ in worker productivity describes mental activities while the ‘work’ in labour productivity is mostly associated with manual activities.
• Productivity of an activity is usually measured as the quantum of output value per unit of labour (time) cost at a micro level. At a macro level, it is measured in terms of the labour-output ratio or change in Net Domestic Product (NDP) per worker in each sector (where working hours are assumed to be 8 hours per day).
• However, in certain types of services, especially ones involving intellectual labour, measuring the value of the output independently is very difficult, so the income of workers is usually taken as proxies to suggest productivity.
• Productivity in a more sophisticated usage is an attribute not of time but of skill.
• Human capital including education, training, nutrition, health etc., enhances the ability of labour to become more productive, or churn out greater quantum of value within the same number of working hours.
• Based on this understanding, the reduction in the number of working hours does not hamper the value of output produced, but in turn enhances the leisure and quality of life of workers in real terms, while the value added to the economy could still be increasing, nominal wages remaining the same.

Link between worker productivity and economic growth

• While an increase in productivity made through any sector is likely to affect the value added and the accumulation or growth in the economy, the relationship between the two could be quite complex.
• If by prosperity we intend to suggest prosperity of the workers, this may or may not be true.
• It is noted that the increase in incomes or the prosperity of the richest people is not quite explained by their productivity.
• On the contrary, this prosperity is either linked to hereditary transfers of wealth upon which the rich are earning yields (he called this patrimonial capitalism) or to the ‘super managerial’ class who seem to be deciding their own exorbitant pay packages, quite arbitrarily, not related in any way to their productivity.

India and worker productivity

• As incomes are seen as a proxy for productivity, there is a fallacious inference about productivity of workers in India being low.
• A U.S based multi-national workforce management firm, has in fact observed that Indians are among the most hard working employees in the world.
• On the other hand, Picodi.com an international ecommerce platform has observed that India ranks one of the lowest in terms of average wages per month globally.
• Informal employment in both the unorganised as well as the organised sectors has been on the rise through the course of economic reforms.
• The dubious claim of increased formalisation has been limited only to bringing activities under the tax net. This has however had no impact on improving labour standards or working conditions.
• Even in the formal manufacturing sector you find an overwhelming presence of Micro-Small-Medium Enterprises (MSME) which are labour intensive.
• Studies have also found that there is a systematic process of cost cutting through wage cutting in these enterprises.

Way forward

• Japan and Germany are neither comparable in terms of the size and quality of labour force nor in terms of the nature of their technological trajectories or their socio-cultural and political structures.
• India presents a unique case and any arbitrary comparison would only lead to dubious analytical inferences and fallacious policy prescripts.
• Enhancing social investments, focusing on exploring domestic consumption potential for increased productivity with a human centric assessment of development achievements is the way to a more sustainable and desirable outcome.