The Experience Curve of Workers

The Experience Curve of Workers

As production increases, workers gain more experience, reducing their labor costs and increasing their incomes. This happens to a firm that has experienced workers. Its workers have more opportunities to gain experience and improve their skills. In turn, this experience typically leads to an increase in efficiency, which can lead to a reduction in costs for the company as well as an increase in its revenue. They are able to perform their tasks more quickly and effectively, allowing for a business to be more profitable as a result.

The idea

There was a company called Boston Consulting Group (BCG) that, in the mid-1960s, noticed that every time it doubled its production level, a manufacturer of semiconductors was able to decrease its unit manufacturing cost by 25 percent. This can be attributed to the fact that the workers gained valuable experience as a result of their training, which allowed them to become more efficient in their work.

This idea, which is based on a slight variation of the traditional concept of “economies of scale”, clearly emphasizes the importance of employee experience when choosing which workers to hire and how much to produce, which has a range of broad, strategic implications that should be considered when making decisions about which workers to hire.

While experience curves have had an impact on a number of industries and companies over the past few decades, the effects are not universal. The general estimate is that when experience doubles, cost reductions of 20-30 percent will occur when the number of employees doubles over time, but there are many companies that deviate from this estimate, with some only seeing a 5 percent reduction in costs when the number of employees doubles over time.

According to some theories, this is due to the fact that different production processes provide different opportunities for gaining experience as a result of these processes. There are also many firms that are not able to drastically increase their production levels when there is a fixed demand for a particular product or when a production process is both time-consuming and complex, or when there is a fixed demand for the product.

It is also important to note that some companies simply do not have the resources to be able to increase their production levels. There is no doubt that the learning curve has a valuable lesson for every company, regardless of whether or not they are capable of actually increasing production. There are many ways for someone to gain experience, such as reading books, watching videos, or becoming a mentor to someone who already has experience.

In addition, firms can also hire workers who have already experienced veterans of their respective industries (although it is usually necessary to pay higher salaries to these workers since they have already gained experience in the field). Additionally, businesses that are new to the market can also use innovation to create new products, change market preferences, and render the experience of their competitors redundant through the use of new products.

As a matter of fact

1. Employers should encourage their employees to view their work as an opportunity for them to learn on the job.

2. There are times when increasing your production may not be appropriate. For example, if your demand is fixed, then an increased output will result in increased wastage.

3. Identify the reasons why people leave the company in order to prevent high employee turnover.

4. Assist workers in gaining both firsthand as well as secondhand experience in the production process by providing them with opportunities to read and teach so that they can gain secondhand experience. Read More – Why Do We Need Happy People in the Workplace