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Indian Economy

Worker Productivity and Economic Growth

  • 07 Nov 2023
  • 7 min read

For Prelims: Worker Productivity and Economic Growth, Labor Productivity, Second World War, Make in India, Startup India.

For Mains: Worker Productivity and Economic Growth, Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Source: TH

Why in News?

Recently, one of the Industry Leaders, has sparked a debate over Worker Productivity and Economic Growth by urging young Indians to work 70 hours per week.

  • He cited 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.

What is Worker Productivity?

  • About:
    • The only conceptual difference between the Worker Productivity and Labor Productivity 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 labor-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).
  • Measuring Intellectual Worker Productivity:
    • In certain sectors, particularly those involving intellectual labor, evaluating the value of output can be inherently challenging.
      • As a result, worker productivity is often approximated based on worker income, which can create complications when attempting to correlate increased working hours with higher productivity, particularly if workers don't receive fair compensation for their additional efforts.
  • Role of Skill in Productivity:
    • Productivity is not just about time, it's about skill. By investing in education, training, health, and other aspects of Human Capital, workers can become more efficient and create more value in the same amount of time.
    • So, working fewer hours doesn't necessarily reduce output; it can actually improve workers' quality of life.
      • The economy can still grow, even if nominal wages remain the same, as long as workers become more skilled and productive.

Is There a 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 is quite complex.
  • During the period 1980 to 2015, India's Gross Domestic Product (GDP) expanded significantly, indicating robust economic growth. However, this economic growth did not uniformly benefit all segments of society.
    • In 1980, India’s GDP was about USD 200 billion, which by 2015 exceeded USD 2,000 billion.
    • However, when looking at income distribution, the middle-income group's share in the national income decreased from 48% to 29%, and the low-income group's share dropped from 23% to 14%, during 1980-2015.
    • In contrast, the top 10% income group saw their share increase from 30% to 58%, indicating a growing Income Gap in the country during this period.
  • This income inequality and skewed distribution of prosperity among different income groups is not explained by productivity but by poor labor laws, hereditary transfer of wealth, and exorbitant pay packages.

What are the Government Schemes to Improve Productivity and Efficiency in India?

Does India have Low Worker Productivity?

  • India's worker productivity isn't necessarily low, despite income-based misconceptions. The decline in wage shares and the rise in profits since the 1980s can be attributed to various factors, including informal employment, labor laws, and unfavorable regulations for workers.
  • Kronos, a global workforce management company, has recognized Indian employees as one of the most hardworking employees in the world.
    • On the contrary, India ranks low in terms of average monthly wages.

Way Forward

  • India presents a unique case and any arbitrary comparison with others would only lead to dubious analytical inferences and fallacious policy prescriptions.
    • For example, Japan and Germany are neither comparable in terms of the size and quality of the labour force nor in terms of the nature of their technological trajectories or their socio-cultural and political structures.
  • 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.
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