Understanding Worker productivity

Recently, the Infosys founder N.R. Narayana Murthy sparked a debate urging young Indians to work 70 hours per week and noted that India’s worker productivity is one of the lowest in the world.

Intent behind this statement:

• 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, urging young Indians to work 70 hours per week. He noted that India’s worker productivity is one of the lowest in the world.

What is worker productivity?

• Worker productivity refers to how much an employee can accomplish within a set amount of time.
• Productivity can look different for different individuals and roles.
• On the other hand Labour productivity is a measure of economic performance that compares the amount of output with the amount of labour used to produce that output.

Re-evaluating Productivity: The Role of Human Capital in Redefining Work Hours and Worker Well-being

• 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. 
• 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.

Link between worker productivity and economic growth

• Analyzing the Complex Relationship between Productivity and Economic Prosperity: A Case Study of India (1980-2015)
• In the period from 1980 to 2015, India witnessed a remarkable increase in its Gross Domestic Product (GDP) from 200 billion dollars to over 2,000 billion dollars. This growth may suggest overall economic prosperity, but a closer look at income distribution reveals a more intricate story.
• During this same period, income distribution in India underwent significant changes.
• The share of national income held by the middle-income group (40%) and the low-income group (50%) decreased from 48% to 29% and 23% to 14%, respectively. In contrast, the top 10% of income earners saw their share rise from 30% to 58%.
• This implies that the income of the bottom 50% of the population increased by 90% from 1980 to 2015, while the top 10% experienced a much more substantial increase of 435%. The top 0.01% and top 0.001% witnessed even more dramatic increases of 1699% and 2040%, respectively.
• What's particularly interesting is that these substantial increases in income for the wealthiest individuals can't be solely explained by their productivity. Instead, this prosperity appears to be linked to inherited wealth generating substantial returns (referred to as patrimonial capitalism) or the extravagant compensation packages of a select "super managerial" class, which often appear disconnected from their actual productivity.

Does India have one of the ‘lowest worker productivity’ in the world?

• As incomes are seen as a proxy for productivity, there is a fallacious inference about productivity of workers in India being low. The question as to why over the years, beginning with the 1980s, the share of wages and salaries have declined while the share of profits has increased, perhaps is linked to the informalisation of employment, labour laws and the development and regulation regime becoming unfavourable to workers.
• A U.S based multi-national workforce management firm, has in fact observed that Indians are among the hardest working employees in the world.
• com an international ecommerce platform has observed that India ranks one of the lowest in terms of average wages per month globally. Therefore, statement does not seem to be backed by facts. It seems to be part of an effort to push further labour reforms unfavourable to the workers by creating a false narrative.

Does having a high informal labour pool complicate the calculation of worker productivity and its correlation to GDP?

• Informal employment has grown in both organized and unorganized sectors due to economic reforms. Claims of increased formalization are limited to tax compliance and haven't improved labor standards.
• Even in formal manufacturing, labor-intensive Micro-Small-Medium Enterprises (MSMEs) dominate, cutting costs through lower wages. This is driven by the profit motive, leading to worker exploitation. Large corporations also outsource to these smaller units, a trend seen in India and globally, including the IT sector.

How far the comparison is tenable?

• These comparisons don’t seem to enable serious analysis. Japan and Germany are neither comparable in terms of the size nor quality of labour force nor in terms of the nature of their technological trajectories or their socio-cultural and political structures. India presents a unique case and any arbitrary comparison would only lead to dubious analytical inferences and fallacious policy prescripts.
• 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.

Way forward

• The advice to work longer hours to accelerate India's development, while drawing inspiration from other nations, must be considered in a more nuanced context.
• Worker productivity is not solely defined by working longer hours; it encompasses various factors, including skill development and human capital.
• Furthermore, the informal labour sector's growth and income inequality in India complicate the correlation between worker productivity and GDP.
• It is crucial to prioritize policies that promote equitable growth, improve working conditions, and address income disparities.
• These measures, rather than arbitrary comparisons, will lead to a more sustainable and desirable outcome for India's economic development, fostering a society where prosperity is accessible to all.