Understanding worker productivity and how it relates to economic growth | Explained

Vijay.G argues that Mr. Murthy's statement of increased productivity through increased working hours is fallacious. He explains that productivity is an attribute of skill, not time, and that reducing working hours can improve leisure and quality of life without reducing output value. He further notes that the increase in prosperity of the richest people is not explained by productivity, but by hereditary transfers of wealth and arbitrary pay packages. He also argues that the comparison of India to Japan and Germany is arbitrary and that social investments and domestic consumption should be the focus for a more sustainable outcome.

The story so far: Infosys founder N.R. Narayana Murthy sparked a debate last week by urging young Indians to work 70 hours per week, citing 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. He further noted that India’s worker productivity is one of the lowest in the world.

The only conceptual difference between the two 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 labour-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).

However, in certain types of services, especially ones involving intellectual labour, measuring the value of the output independently is very difficult, so the income of workers is usually taken as proxies to suggest productivity. Therefore, the statement by Mr. Murthy, which conveys that by increasing the total number of working hours, productivity or the value of the quantum of work done per unit of labour (time) can increase, looks fallacious. The only way this can happen is if the additional quantum of work done and output value produced has no commensurate pay. While this may seem normal for someone who wishes to maximise profits, it can otherwise be seen as a repulsively crude appetite for increasing profits at the expense of the workers.

Productivity in a more sophisticated usage is an attribute not of time but of skill. Human capital (a more reductionist version of Human Development) including education, training, nutrition, health etc., enhances the ability of labour to become more productive, or churn out greater quantum of value within the same number of working hours. Based on this understanding, the reduction in the number of working hours does not hamper the value of output produced, but in turn enhances the leisure and quality of life of workers in real terms, while the value added to the economy could still be increasing, nominal wages remaining the same.

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 could be quite complex.

If by prosperity we intend to suggest prosperity of the workers, this may or may not be true. In 1980, India’s Gross Domestic Product was about $200 billion, which by 2015 exceeded $2,000 billion. However, in terms of the distribution of income across groups in India, Lucas Chancel and Thomas Piketty have shown that during 1980-2015, where the share in the national income of 40% of the middle income group and 50% of the low income group in India had decreased from 48% to 29% and 23% to 14% respectively, the top 10% income groups share had increased from 30% to 58%.

This effectively means that the income groups in the bottom 50% in India experienced an increase in their income from 1980 to 2015 by 90%, whereas income groups in the top 10% experienced an increase in income by 435%. The top 0.01% has had an increase of 1699% percent from 1980 to 2015 and the top 0.001% have had an increase of 2040%. Chancel and Piketty note that the increase in incomes or the prosperity of the richest people is not quite explained by their productivity. On the contrary, this prosperity is either linked to hereditary transfers of wealth upon which the rich are earning yields (he called this patrimonial capitalism) or to the ‘super managerial’ class who seem to be deciding their own exorbitant pay packages, quite arbitrarily, not related in any way to their productivity. While Mr. Murthy might have worked quite hard, the class he belongs to in general seems to be holding a value, which in no way is either linked to productivity or value contributions based on skill and effort. This delinking of productivity and rewards is in fact one of the worries about the legitimacy of the capitalist class order in contemporary times which Piketty expresses.