Productivity Output

Productivity Output

Productivity, the output of a unit of a factor of production in a stated period. For example, the productivity of labour is usually measured as output per man per year (or other calendar period), or output per man per shift or per hour. Strictly, the term is best related to a single factor; when a group of factors, as in a firm, is being analysed, it is more common to use the term 'efficiency'.

When a factor of production becomes more productive, output rises per unit of input; in other words, a smaller input is required to obtain a given output. If other things, including the prices of all inputs, remain the same, the cost per unit of output will fall. The share of the factor in unit cost will diminish even if cost does not fall for the enterprise as a whole. The productivity of a country's re-sources thus governs the level of its real costs and determines how much of particular resources have to be used to achieve a given result. Hence if labour in one country (or firm) has a higher productivity than that in another country (or firm), it can 'afford' to earn more in terms of money without having higher costs. The history of the rising standard of living in Western Europe and the North American continent has been the history of a steep rise in productivity.

The measurement of productivity raises problems of valuation and 'imputation' (attributing yields to each factor within the group). The difficulties of valuation are those of trying to add together 'apples and pears'. Outputs and inputs are rarely homogeneous and cannot easily be compared through time, between countries or between industries. The 'same' product may differ in quality, the 'same' labour in 'skill'. In principle these difficulties can be overcome by valuing the physical outputs and factors in terms of money, but it is not easy to rely on the prices available for measurement. For example, the price of a product in one country may be higher than in another because there is a larger degree of monopoly. A similar problem exists in international comparisons where the exchange rates between currencies are officially maintained at levels that do not reflect the real relationship between prices in the countries. The problems of imputation arise from the use of factors in combination. If changes in output require changes in the amounts of more than one type of factor, it is hard to ascribe a change in productivity to one factor rather than another.

These difficulties and others (such as measurement of the output of office staff or teachers) are formidable. Nevertheless broad, serviceable computations can be made, changes indicated and differences between countries, regions, industries or firms established. Where, for example, differences are large even after allowing for the over-simplifications and exaggerations of the statistics, productivity measures provide a guide-line and serve to direct attention to the relevant factors of technology, capital equipment, market forms and organization.

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