Labor productivity is the value of goods and services produced in a period of time, divided by the hours of labor used to produce them. Labor productivity measures output produced per unit of labor, usually reported as output per hour worked or output per employed person. Increases in labor productivity are driven by technological change, improvements in efficiency, improvements in the quality of labor, and capital deepening (when more capital is added to a given amount of labor). When the word productivity is used, it is generally means labor productivity unless explicitly stated otherwise.
From the national perspective, the measure of labor productivity is defined as GDP per hour worked. There is a fundamental connection between productivity and economic growth:
Economic growth rate = Growth rate in labor productivity + Growth rate in total employment
An increase in labor productivity fundamentally affects the economic growth rate. Specifically, increasing labor productivity is essential to expanding the scale of an economy without relying on an increase in the number of workers. There is also a relationship between wages and productivity. When the labor distribution rate is constant:
Growth rate in labor productivity = Rate of increase in wages
Thus, as long as there is no change in the labor distribution rate, an increase in labor productivity is tied to an increase in wages. This means that an increase in productivity plays a major role in the prosperity of nations, corporations, and individuals. Productivity is therefore a crucial indicator that has been widely used in measuring economic and corporate well-being.
Two key factors that can affect labor productivity are advances in technology and improvements in education and training. Differences in labor productivity are key determinants of wage differences between industrialized and developing countries. For an economy to make further gains in the material standard of living, workers must continue to invest in education and training, and firms must continue to invest in new technology.
See also: Introduction
Lean systems involve doing more with less, i.e., less time, inventory, space, labor, and money. The driving force of lean production is the continuing shift from supply-driven markets led by producers to demand-driven markets led by consumers. This has forced businesses to be more flexible to meet the diverse, rapidly changing demands of consumers while remaining competitive. The main source of lean production systems is the Toyota production system (TPS) developed by the Toyota Motor Company after the Second World War. In the 1980s as Western executives began taking note of Toyota’s success, academia also begun studying and writing about the benefits of this seemingly revolutionary production system. Two of these academics were James P. Womack of the Massachusetts Institute of Technology and Daniel T. Jones of the University of Cardiff in Wales. They are widely credited for coining the term lean manufacturing to describe the TPS to Westerners.
See also: 5S or good housekeeping; Kaizen; Toyota production system
Life cycle assessment (LCA) is the process of evaluating the effects that a product has on the environment over its entire life. LCA provides objective answers and suggests more sustainable forms of production and consumption. It uses a scientific approach in which the quantification of effects plays a dominant role. A complete LCA is composed of three separate but interrelated components:
・Life cycle inventory is an objective process of identifying and quantifying the environmental loads involved, i.e., the energy and raw materials used and the emissions and waste consequently released (air emissions, liquid effluents, solid waste) throughout the life cycle of a product, process, or activity.
・Life cycle impact analysis is a technical quantitative and/or qualitative process to characterize and assess the effects of the environmental load identified in the inventory component. The assessment should address both ecological and human health considerations as well as such other effects as habitat modification and noise pollution.
・Life cycle improvement analysis is a systematic evaluation of the needs and opportunities to reduce the environmental burden associated with energy and raw material use and environmental releases throughout the whole life cycle of the product, process, or activity. This analysis may include both quantitative measures of improvement such as changes in product, process, and activity design; raw material use; industrial processing; consumer use; and waste management.
See also: Green purchasing
The logical framework approach (LFA) is an analytical management tool that can help planners and managers determine the existing situation during project preparation; establish a logical hierarchy of means by which objectives will be reached; identify the potential risks in achieving the objectives and to sustainable outcomes; establish how outputs and outcomes might best be monitored and evaluated; present a summary of the project in a standard format; and monitor and review projects during implementation. It can thus be used for planning many different types of projects. The approach involves problem analysis, stakeholder analysis, developing a hierarchy of objectives, and selecting a preferred implementation strategy. The product of this analytical approach is the logical framework matrix (the logframe), which is usually a one- to two-page document summarizing what the project intends to do and how, what the key assumptions are, and how outputs and outcomes will be monitored and evaluated. The LFA has been adopted by international financing institutions such as the World Bank and the Asian Development Bank and many agencies involved in providing development assistance such as the British DFID, Canada’s CIDA, OECD Expert Group on Aid Evaluation, International Service for National Agricultural Research, Australia’s AusAID, and Germany’s GTZ.
Low-cost automation (LCA) describes a customized production system that bridges the technological frontier through intervention with unique automation in selected points of the production chain. Commonly found in labor-intensive environments in developing countries, it leverages the application of economies of scope and speed. Although a very old approach, LCA remains relevant to countries becoming more industrial based through increased flexibility and cost-efficiency.