Beth’s Birdhouses

Welcome to Beth’s Birdhouses, a small company that makes and sells birdhouses to customers.

What is Beth's output?

Output is a quantity of goods or services produced. It is often measured in terms of dollar value.

Beth is the only employee at Beth’s Birdhouses and she makes and sells 300 birdhouses each year. She sells each birdhouse for $10 each.

The output at Beth’s Birdhouses is 300 birdhouses, and the value of production is $3,000.

What are Beth's inputs?

The inputs Beth uses to make birdhouses are:

  • Time worked by employees
  • A work space
  • Materials like wood, glue, and paint
  • Equipment like saws

What is Beth's labor input?

Labor input is the time worked to create goods and services.

Beth is the only employee at Beth’s Birdhouses and she works there for 100 hours each year making birdhouses.

The labor input at Beth’s Birdhouses is 100 hours.

What are Beth's other inputs?

There are inputs at Beth’s Birdhouses other than labor.

Beth’s other inputs include:

  • Capital — the garage Beth rents from her neighbor to work out of
  • Materials — The wood, glue, and paint Beth uses to make bird houses

What is Beth's labor productivity?

Labor productivity measures the relationship between output and labor input.

The output at Beth’s Birdhouses is 300 birdhouses.

The labor input at Beth’s Birdhouses is 100 hours.

Therefore, the labor productivity at Beth’s Birdhouses is 3 birdhouses per hour.

What is Beth's labor productivity?

What happens if Beth...?

What will happen if Beth makes changes to how she builds birdhouses?

After working hard for a year making and selling birdhouses, one day Beth finds an easier way to cut some of the pieces of wood for the birdhouses. Now, making fewer cuts, she can make 500 houses each year, working for the same amount of time. Her labor productivity has increased to 5 houses per hour.

What is Beth's new labor productivity?

What happens if Beth...?

What will happen if Beth makes changes to how she builds birdhouses?

Beth has been cutting the wood for her birdhouses with a hand-held electric saw. She realizes she can cut the wood more efficiently and increase production by purchasing a table saw, which she does the following year. Beth can now make 800 birdhouses each year. Her labor productivity has increased to 8 birdhouses per hour.

Labor productivity at Beth's Birdhouses:

Continuing with our example of a small manufacturing establishment, Beth’s Birdhouses, we can show the calculation of labor productivity for the establishment over the three years covered by the example.

Annual output, hours worked, and labor productivity at Beth’s Birdhouses:

We can then summarize the relevant data series in the form of a table.

Annual growth in output, hours worked, and labor productivity at Beth’s Birdhouses:

...and then add growth rates to our data table.

Annual growth in output, hours worked, and labor productivity at Beth’s Birdhouses:
Year Output
(units)
Output
growth
Hours
worked
(hours)
Growth in
hours
worked
Labor
productivity
(units/hour)
Labor
productivity
growth

1

300   100   3  

2

500 67% 100 0% 5 67%

3

800 60% 100 0% 8 60%

Output, hours worked, and labor productivity at Beth’s Birdhouses:

We can also demonstrate an alternative way to calculate labor productivity growth...

Output, hours worked, and labor productivity at Beth's Birdhouses
Year LEVELS INDEXES (Year 1 = 100.0) ANNUAL PERCENT CHANGES
Output
(units)
Hours
worked
(hours)
Labor
productivity
(units/hour)
Output Hours
worked
Labor
productivity
Output Hours
worked
Labor
productivity

1

300 100 3 100 100 100      

2

500 100 5 166.7 100 166.7 67% 0% 67%

3

800 100 8 266.7 100 266.7 60% 0% 60%