Productivity and Cost - Essay Example

“In the long run there is a positive relationship between improvements in labor productivity and the real wages paid to labor as a factor of production. Millions of employees in the modern labor market have some element of performance-related pay in their overall earnings package.”(Gain from Higher Productivity, Higher Real Wages). Productivity of labor is number of unit production per day. In a strategic production decision high production output with lover number of labor is more benefit for organization in this type of production strategy will helps both the organization and labor.

Management firstly identifies each labor’s productivity to determine in which area they can work more effectively, and properly split the production process. Then they allot each labor the work of their area of expertise. This type of production method can help the organization to achieve maximum output and laborers can earn more wages. It will also help in increasing the marginal productivity of labor and marginal cost is decreased. Example: A clothing company has 10 labors each labors productivity is 3 shirts per day total productivity is 30 shirts in a day.

When these jobs are split into different processes and allotted to each labor depending on their skilled area it will result in an increase in the total production and fixed cost incurred per unit will decrease. This production method helps to reduce the cost of production. Wage also depends on the demand and supply of labor. High availability of labor may cause a decrease in wage and higher demand for labor can cause increase in wage. Labor productivity also relates to organization’s total cost of production.

Costs including fixed and variable cost also relate to labor productivity. A firm’s strategy for reducing their cost of production by resorting to high productivity labor can make