Labor productivity is determined by dividing the output, or total amount of goods or services produced, by the number of workers. Labor productivity is used to measure worker efficiency.
Dividing the total amount of goods or services produced by the number of hours worked yields labor productivity. By itself, labor productivity tells management little about efficiency and productivity. It becomes useful when it is compared across time periods to determine whether workers are producing more or less than before. If labor productivity increase from one period to the next, workers are more efficient, productive and, most likely, profitable. A decrease in labor productivity is negative and requires managerial attention.