A Case For Improving Labor Productivity

April 25th, 2019 / Hillary K Bainny
| Workers at a construction site

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How much value do you add to your business or comapny?

Labor productivity is the value that each employed person creates per unit of his or her input. To calculate a country's labor productivity, you would divide the total output by the total number of labor hours.

The easiest way to understand the concept of labor productivity is to imagine a Kenyan worker who can make 5 bottles of drinking water in an hour versus a Ugandan worker who in the same hour can make only two bottles of drinking water. In this fictional example, the kenyans are more productive.

Being more productive essentially means you can do more in the same amount of time. This in turn frees up resources to be used elsewhere. As a country’s labor productivity grows, it produces more goods and services for the same amount of relative work. This increase in output makes it possible to consume more of the goods and services for an increasingly reasonable price.

A country’s rate of productivity growth is closely linked to the growth rate of its GDP per capita, although the two are not identical. It is important to note, if the percentage of the population who holds jobs in an economy increases, GDP per capita will increase but the productivity of individual workers may not be affected.

Over the long term, the only way that GDP per capita can grow continually is if the productivity of the average worker rises or if there are complementary increases in capital.

According to the World Bank, Uganda’s economy has recently grown at a slower pace. Average annual growth was 4.5% in the five years to 2016, compared to the 7% achieved during the 1990s and early 2000s. The slowdown was mainly driven by adverse weather, unrest in South Sudan, private sector credit constraints, and the poor execution of public projects.

However, the economy rebounded in the latter half of 2017, driven largely by growth in information and communication technology (ICT) services and favorable weather conditions for the agricultural sector. Real gross domestic product (GDP) growth is expected to be above 5% in 2018 and could rise further to 6% in 2019.

This is an indication of an economy caught up in a low productivity and low economic growth trap. The low productivity and low economic growth trap is a concern because our population growth rate is about 3.3%. An economic growth of 5% in 2018 implies net economic growth is actually 1.7%.

This low economic growth implies that our economy is not creating enough jobs, increasing the risks associated with unemployed youths hence wasting away energetic youth productivity.

It is also well documented that workers in Uganda are less educated and poorly paid. According to the 2014 report by the Federation of Uganda Employers (FUE) in conjunction with Dutch and Tanzanian researchers, most working Ugandans are only educated up to secondary level, work for 10 years, six days a week and earn at least shs. 403 per hour according to a wages survey. More on this can be found here.

Creating quality jobs is a challenge for the Ugandan government, but by implementing policies to ensure inclusive growth will help the country reach middle income status.

Productivity growth is closely linked to the average level of wages. Over time, the amount that companies are willing to pay workers will depend on the value of the output those workers produce.

The vast majority of Uganda’s labor force remains employed in low productivity activities. This is largely because the most productive, rapidly expanding economic sectors are often more capital intensive than labor-intensive and employ only a small proportion of the workforce.

The Agricultural sector plays an important role in our economy. Agriculture is the core of the economy and the primary source of employment; creating better jobs on the farm and promoting agribusiness that are critical to improving productivity. Unfortunately, it uses labor least productively.

As already mentioned, the bulk of the population continues to work in the agricultural sector, often engaged in subsistence activities, with only a small proportion of agricultural workers engaged in the cultivation of high-value, commercialized crops.

In the urban areas, a significant proportion of the population works in the informal sector, which faces particular constraints that prevent it from achieving high levels of productivity, including limited access to capital, limited support and recognition by the authorities, and limited access to workspaces and other facilities.

The Government needs embrace agriculture’s key role in Uganda’s economy, while also taking keen interest in output per worker and exploiting it. Improving annual output per worker within agriculture, the highest participation sector by far, requires a better understanding of smallholder farmers’ labor demand.

The government should Invest in infrastructure: Increasing the investment in infrastructure from governments and the private sector can help productivity while lowering the cost of doing business. The Government has embarked on infrastructural development since early 2000 as a way of reducing the cost of doing business.

However, even with the completion of some of the infrastructure projects, like, Bujagali Hydro Power Dam, Karuma, the cost of electricity has remained rather unfriendly to the manufacturing sector let alone households. Also, delays associated with the construction and completion of the infrastructure projects implies delayed productivity gains.

The Government and private sector need to improve the Quality of education and training: Offering opportunities for workers to upgrade their skills, and offering education and training at an affordable cost, help raise a corporation’s productivity. In addition, the government should register more technical and vocational education training institutions to bridge skill gaps in the labour market.

To accelerate and sustain an inclusive growth momentum, policy makers must continue to focus on investments that foster human capital, reduce resource misallocation and boost productivity.

In Conclusion, there is need to pay attention to Labour Productivity. Change in labor productivity is one of the most watched international statistics of growth.

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