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Productivity may be either labor productivity capital productivity.
Labor productivity is measured by the certain specific output produced in a given time by a person or labor and comparing the output with the industry average or set national or international standard.
Capital productivity is measured in monetary terms as percentage of the invested amount over a period of one year from an investment decision.
A new Productivity Commission Staff Research Note unpacks the concept of productivity and how it is measured.
Productivity growth is frequently lauded by the business community, media commentators and politicians as the solution to improving living standards, yet there is little agreement on what productivity actually is.
To economists, productivity is the efficiency with which firms, organisations, industry, and the economy as a whole, convert inputs (labour, capital, and raw materials) into output. Productivity grows when output grows faster than inputs, which makes the existing inputs more productively efficient. Productivity does not reflect how much we value the outputs — it only measures how efficiently we use our resources to produce them.
The generation and application of technological and organisational knowledge (innovation) are the main drivers of firm-level productivity growth. These determinants are broader than technology in an engineering sense. The choice of production technology and how production is organised, which are management decisions, play a crucial role in productivity performance.
Firms can improve their productive efficiency in three ways:
Improvements in firm level productivity translate directly into national economic growth, but productivity growth in the economy can exceed that of the individual firms. This is because competition favours firms that are more productive, and so these firms' market share expands, while that of less productive firms contracts. In the process, the average level of productivity is increased. This process of competitive dynamics is important for keeping the economy close to its production possibility frontier. Policies and market behaviour that undermine competition may cause the economy to slip below its potential.
There is also potential for 'spillovers' between firms that mean productivity improvements can be contagious. That is, the things that firms do to benefit themselves benefits other firms as well. Proponents of proactive industry policies (such as government support for innovation hubs and clusters) often cite the importance of spillovers as a source of productivity growth. However, proposals for public expenditure in this area need careful scrutiny to ensure that spillovers are indeed generated, they are from activity that otherwise would not have occurred, and the benefits exceed the public cost.
Measured productivity is the ratio of a measure of total outputs to a measure of inputs used in the production of goods and services. Productivity growth is estimated by subtracting the growth in inputs from the growth in output — it is the residual.
There are a number of ways to measure productivity. In Australia, the most common productivity measures used are:
The calculation of MFP using the traditional accounting methods requires independent measures of inputs and outputs. For Australia, this is calculated for 16 industries, which the ABS terms the market sector of the economy. Hence, economy-wide MFP estimates reflect productivity growth in only around 80 per cent of the economy (the share of the 16 industries in total GDP). LP can be measured for both the market and non-market sectors of the economy. This is because labour input can be measured in real volume terms as hours worked.
MFP is a measure closer to the concept of productive efficiency than LP as it removes the contribution of capital deepening from the residual.
Two potential sources of change in measured productivity warrant special attention: unmeasured inputs that affect real costs, and capacity utilisation. There are also a number of measurement problems associated with estimating output and input volumes.
In some industries, inputs other than capital and labour (and knowledge) can have a strong influence on output. Where these inputs are not purchased in the market, as is the case with some natural resource inputs and volunteer effort, they are not included in the measure of inputs. If the availability or quality of these inputs is changing then productivity estimates, as the residual, will be affected.
Recent Commission research has identified Mining, Utilities, and Agriculture as industries where the MFP estimates are affected by changes in unmeasured inputs. These industries are all dependent on natural resource inputs. Deterioration in the quality of the natural resource input, or more stringent regulatory restrictions on the uses of such inputs, can reduce measured productivity despite the productive efficiency of the firms in the industry remaining unchanged or even improving.
Business output responds to market demand. As demand rises or falls over time with the business cycle or other influences, firms adjust the output they produce. In the case of cyclical downturn, many firms will reduce output volumes, but cannot easily reduce their capital and labour inputs as they need these inputs ready for when demand recovers. As a result, firms are likely to underutilise their capital and labour inputs in a downturn and productivity will be lower. When business is booming, firms will fully utilise their capital and labour. Hence, measured productivity tends to be pro-cyclical as utilisation rates of inputs rise in upswings and fall in downswings.
Many industries experience cycles in demand that affect capacity utilisation but industries with high levels of fixed capital, such as manufacturing, tend to be more exposed to the business cycle. This means that annual productivity estimates are likely to under or overstate the underlying trend level of productivity depending on where the industry is in the business cycle.
To assist users to interpret measured productivity, the ABS divides time series MFP into productivity cycles for the market sector. The start and end points of the cycles correspond to points where the levels of capacity utilisation are likely to be comparable. Average productivity growth between these points is a more reliable measure of productivity growth over a given period than those based on different years in the cycle.
Problems in both the accuracy of the raw data and in the methodologies applied generate measurement errors. Improvements in data quality and methodology are a part of the ongoing function of the ABS, resulting in periodic revisions of the estimates of MFP.
Two problems in measuring inputs that can introduce errors into the estimates of productivity are difficulties in measuring the volume of capital services, and lags between investment (when it is counted as adding to the productive capital stock) and when it is actually utilised in production. These issues arise mainly where there are large infrastructure projects and when major new technology is introduced, such as ICT.
Measured productivity growth (MFP and LP) reflects a number of influences:
The key point is that it is important to unpack measures of productivity to understand the proximate and underlying factors affecting productivity growth.
Well its my point of view so let me first start with the defination of measurment. Measurment means comparing with some standard. Since we are talking about productivity which is a dynamic term, i-e very body has its own standards and level which they considered to be regarded as productive. Therefore to measure the productivity one must first decide and fix a standard in its mind and then compare your work with the set standard. This will definatly tells you where you are standing and either you have been productive or not.
Hopes that helped
Productivity is an average measure of the efficiency of production. It can be expressed as the ratio of output to inputs used in the production process, i.e. output per unit of input. When all outputs and inputs are included in the productivity measure it is called total productivity. Outputs and inputs are defined in the total productivity measure as their economic values. The value of outputs minus the value of inputs is a measure of the income generated in a production process. It is a measure of total efficiency of a production process and as such the objective to be maximized in production process.
Productivity measures that use one or more inputs or factors, but not all factors, are called partial productivities. A common example in economics is labor productivity, usually expressed as output per hour. At the company level, typical partial productivity measures are such things as worker hours, materials or energy per unit of production.
In macroeconomics the approach is different. In macroeconomics one wants to examine an entity of many production processes and the output is obtained by summing up the value-added created in the single processes. This is done in order to avoid the double accounting of intermediate inputs. Value-added is obtained by subtracting the intermediate inputs from the outputs. The most well-known and used measure of value-added is the GDP (Gross Domestic Product). It is widely used as a measure of the economic growth of nations and industries. GDP is the income available for paying capital costs, labor compensation, taxes and profits.
For a single input this means the ratio of output (value-added) to input. When multiple inputs are considered, such as labor and capital, it means the unaccounted for level of output compared to the level of inputs. This measure is called in macroeconomics Total Factor Productivity TFP or Multi Factor Productivity MFP.
Productivity is a crucial factor in production performance of firms and nations. Increasing national productivity can raise living standards because more real income improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth also helps businesses to be more profitable.
It could be measured by:
1. The real produced units
2. The total generated incomes
3. The whole transformation through the production progresses
Thank You
Yea, it is same as total output divided by total input x = Productivity .
In other sense, Productivity is an average measure of the efficiency of production. It can be expressed as the ratio of output to inputs used in the production process, i.e. output per unit of input. When all outputs and inputs are included in the productivity measure it is called total productivity.
Productivity can be defined as the number of units produced per unit consumed
Hourly productivity per person = number of units produced divided by the number of hours worked
The term yield is often used synonymously with total productivity.
The total productivity is a measure that takes into account all the resources consumed by the production: capital - labor - Material. The total productivity is measured by the rapoort between the units produced and the market value of all assets necessary to produce them.
Productivity in value added is the difference between the value of what is produced and the cost of purchased material. this difference is equal to the sum of the contribution of labor and more capital the benefit if there is one or less loss if there is one.
L productivity in value added is equal to the value of output less the costs of purchases divided by the number of hours worked.
Total Outputs/Total Inputs *100
Waiting for expert answer in production field. Thanks
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