Understanding Worker Productivity

Relevance: GS2 - Issues Related to Development; GS3 - Indian Economy, Growth and Employment

(Source: The Hindu, 11/03/2023)

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Why in the news?

• Recently, the Infosys founder Narayana Murthy remarked about India's low work productivity and suggested that youngsters in India should at least work 70 hours a 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, and further stated that India’s worker productivity is one of the lowest in the world.

What is Productivity?

• Productivity refers to the measure of how efficiently resources are used to achieve a particular goal or outcome. It is often associated with the idea of getting more output or value from a given input.
• It is the efficiency of using resources like labour and capital to produce goods and services. It impacts a nation’s living standards and economic growth.
• Productivity can be applied to various contexts, such as individuals, organizations, industries, or even entire economies.
• 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.
• Worker Productivity vs. Labour Productivity: Worker productivity involves mental activities, while labour productivity is associated with manual tasks.
• Type of Productivity:
  • Labour Productivity: It measures output per hour of work, directly influencing wages, living standards, and purchasing power.
  • Capital Productivity: It evaluates output from physical assets like machinery and buildings, impacting profitability and competitiveness.
  • Total Factor Productivity: It accounts for output growth beyond labour and capital, are often associated with innovation, efficiency, and technological progress.

How many hours does an average young Indian work at present?

• Data from the 2019 Time Use Survey in India indicates that young Indians aged 15-29 currently work around 7.2 hours a day in rural areas and 8.5 hours a day in urban areas.
• A State-wise comparison of the time spent on work in urban areas is higher than in rural areas.
• Uttarakhand ranks first, with young people from the State working for an average of 9.6 hours a day.
• Indian Workers’ Productivity Status:
  • Despite Indians working an average of nearly 48 hours per week (ILO data), one of the highest figures worldwide, their hourly output stands at $8.47.
  • Countries like France, where the average workweek is around 30 hours, manage to achieve significantly higher productivity of over $58 per hour.

Link between Worker Productivity and Economic Growth

• Economic Growth in India: India's Gross Domestic Product (GDP) increased from $200 billion in 1980 to over $2,000 billion in 2015. However, the distribution of income across different income groups in India reveals disparities.
• Income Distribution Disparities: An analysis shows that from 1980 to 2015, the share of the national income for the middle income group (40%) decreased from 48% to 29%.
• The share of the national income for the low income group (50%) decreased from 23% to 14%.
• The top 10% income group's share increased from 30% to 58%.
• Prosperity and Income Inequality: Prosperity, especially for the bottom 50% income groups, increased by 90% from 1980 to 2015. In contrast, the top 10% experienced a substantial increase of 435% in their income.
• Factors contributing to income disparities include:
  • Hereditary transfers of wealth, leading to yields (patrimonial capitalism).
  • Arbitrarily set exorbitant pay packages for a 'super managerial' class, often unrelated to their productivity.

Worker Productivity in India: A Complex Issue

• Analyzing trend: The decline in the share of wages and salaries, along with an increase in profits since the 1980s, is likely due to factors such as informal employment, unfavorable labor laws, and regulatory conditions that disadvantage workers.
• High informal labor pool: The high informal labor pool in India complicates the calculation of worker productivity and its correlation to GDP. Informal workers are not covered by official statistics, making it difficult to measure their contribution to the economy. Informal workers are often employed in low-productivity jobs, which can drag down the overall productivity figures.
• Rise of informal employment: It has been on the rise through the course of economic reforms in India. This is due to a number of factors, including the decline of agriculture, the growth of the service sector, and the lack of adequate job creation in the formal sector. The rising share of informal employment has made it more difficult to improve worker productivity and GDP growth.
• Labor intensive MSMEs: Even in the formal manufacturing sector, there is an overwhelming presence of Micro-Small-Medium Enterprises (MSME) which are labour intensive. MSMEs are often unable to invest in the necessary technology and training to improve the skills of their workforce.
• Wage cutting: Studies have found that there is a systematic process of cost cutting through wage cutting in MSME enterprises. This is because MSMEs are operating in a competitive environment and need to keep their costs low in order to survive.
• Exploitation of workers: High labor productivity combined with low wages fetch high profits, which can lead to exploitation of workers. This is especially true in the MSME sector, where workers are often vulnerable and have little bargaining power.

Comparison of India’s Economy with Japan and Germany

• Labor Force: India's labor force, in terms of size and quality, is distinct from that of Japan and Germany. India has a large and diverse workforce, but there are issues related to skills, education, and employability that set it apart. Japan and Germany have more specialized and highly skilled labor forces, which can affect their economic dynamics.
• Technological Trajectories: The paths of technological development in these countries vary greatly. Japan and Germany are known for their advanced technology and innovation, while India may have a different focus, including IT services and software development. These differences can lead to variations in economic performance.
• Socio-Cultural and Political Contexts: India, Japan, and Germany have their own unique socio-cultural and political structures. These differences influence economic policies, regulations, and societal expectations, making direct comparisons challenging.

Merits of longer Working Hours

• Increased economic output and GDP growth: Longer working hours contribute to higher productivity, leading to a boost in a country's economic output and overall GDP.
• Enhanced competitiveness on a global scale: Nations with longer working hours can compete more effectively in the global market, attracting investments and fostering economic growth.
• Expansion of employment opportunities: Extended work hours can create more job opportunities, reducing unemployment rates and increasing workforce participation.
• Potential for higher tax revenues for the government: Increased economic activity and higher incomes result in greater tax revenues, which can be used for public services and infrastructure development.
• Greater flexibility to meet market demands: Businesses with longer hours can better adapt to market fluctuations and customer demands, ensuring sustained operations.
• Improved innovation and product development: Extended work hours can provide more time for research and development, fostering innovation and product improvements.
• Gaining valuable work experience and skills: Extended work hours provide more opportunities for individuals to gain valuable experience and develop skills.
• Potential for social and community development: Longer work hours can lead to more resources available for social and community development initiatives, benefiting society as a whole.

Demerits of longer Working Hours

• Increased healthcare costs due to stress-related issues: Longer hours can result in higher healthcare costs, as stress-related health problems become more prevalent, leading to increased medical expenses.
• Limited opportunities for new entrants in the job market: Long working hours may limit opportunities for new job market entrants, as experienced workers may hold onto their positions for longer.
• Diminished creativity and innovation: Over time, long working hours may hamper creativity and innovation, as employees have less time for creative thinking and problem-solving.
• Poor work-life balance: Extended working hours can result in poor work-life balance, causing stress-related health problems for individuals.
• Limited time for personal and family life: Long working hours limit the time individuals can spend on personal and family life, potentially straining relationships.
• Reduced personal development: Extended work hours leave individuals with limited time for education, hobbies, and self-improvement, hindering personal development.
• Reduced community engagement and social cohesion: Individuals working longer hours have less time for participation in community activities and volunteering, which can weaken social cohesion and community engagement.

How can the productivity of Indian workers be improved without increasing the number of working hours?

• Technological Adoption: Invest in modern technologies and automation to streamline processes, reduce manual labor, and improve efficiency.
• Skills Enhancement: Implement initiatives like the Skill India Mission to provide training and education to workers, enhancing their skill sets and adaptability to changing job requirements.
• Infrastructure Upgrade: Develop better transportation infrastructure to reduce commuting time and increase accessibility to workplaces.
• Foster Innovation: Encourage research and development (R&D) activities to drive innovation, leading to improved products and services, and ultimately, increased productivity.
• Collaborative Culture: Promote a collaborative work culture that encourages teamwork, problem-solving, and knowledge sharing among employees.

Some Government Initiative to improve Productivity and Efficiency in India

• Skill Development Initiatives:
• Digital India
• Make in India
• Startup India
• Ease of Doing Business Reforms
• National Industrial Corridor Development
• Incentives for Research and Innovation Programs

Conclusion

Advocating for extended working hours as a means to enhance worker productivity in India brings to the forefront intricate concerns involving labor exploitation, income distribution, and the distinct economic landscape of the country. Drawing parallels with Japan and Germany fails to consider India's distinct challenges and prospects. To foster sustainable and equitable development in India, it is imperative to adopt a comprehensive strategy that navigates these complexities effectively.

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FAQs

MCQ

Question: With reference to the Indian Economy after the 1991 Economic Liberalization, consider the following statements: (UPSC 2020)

1. Worker productivity (Rs. per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas.
2. The percentage share of rural areas in the workforce steadily increased.
3. In rural areas, the growth in the non-farm economy increased.
4. The growth rate in rural employment decreased.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 3 and 4 only

(c) 3 only

(d) 1, 2 and 4 only