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The amount of output per unit of input, such as the quantity of a product produced per hour of capital employed.


A measure of the units of benefit for each unit of work. Benefits include results of work such as GDP or revenue, while units of work include capital and labor. Productivity in the United States is measured by the U.S. Department of Labor on a quarterly basis. It is beneficial for both individual companies and economies to have the maximum amount of productivity possible.


The efficiency with which output is produced by a given set of inputs. Productivity is generally measured by the ratio of output to input. An increase in the ratio indicates an increase in productivity. Conversely, a decrease in the output/input ratio indicates a decline in productivity.


the relationship between the physical output of a product and the factor inputs which have gone into producing that output. Productivity is usually measured in terms of output per man hour, an improvement in productivity showing up as an increase in output per man hour.

Productivity is important to a firm because it enables the firm to establish a COMPETITIVE ADVANTAGE over rival suppliers: a. given output can be produced at a lower resource cost, enabling a firm to supply this output at a lower price; or alternatively the firm can now produce more output from the same amount of inputs, enabling the firm to increase its total profit return. A high rate of growth of output per man hour also puts the firm in a better position to absorb inflationary cost pressures arising from wage increases and increases in raw material prices, should it be difficult (see PRICES AND INCOMES controls) or competitively inopportune to increase prices on a pro rata basis.

A firm can improve its productivity in a variety of ways, including the adoption of better working practices (particularly the removal of RESTRICTIVE LABOUR PRACTICES) and pay-incentive schemes (for example PROFIT-RELATED PAY and PROFIT-SHARING schemes); the adoption of methods for economizing on the STOCKHOLDING of raw materials (for example the JUST-IN-TIME stock ordering system). An especially important source of productivity improvement is the use of superior production methods (for example switching from labour-intensive BATCH PRODUCTION to continuous capital-intensive MASS-PRODUCTION processes), and investment in the latest ‘state-of-the-art’ technologies (for example COMPUTER-AIDED MANUFACTURING systems (CAM) and COMPUTER-AIDED DESIGN (CAD)). See LEAN MANUFACTURING, ECONOMIC GROWTH, EXPERIENCE CURVE, SPECIALIZATION, HOSHIN.


the relationship between the OUTPUT of an economic unit and the FACTOR INPUTS that have gone into producing that output. Productivity is usually measured in terms of output per man hour to facilitate interfirm, interindustry and intercountry comparisons. An increase in productivity occurs when output per man hour is raised. The main source of productivity increases is the use of more and better CAPITAL STOCK (see CAPITAL WIDENING and CAPITAL DEEPENING).

This important point can be illustrated in the following three stages:

  1. Suppose, initially, that the assembly of a motor car is a labour-intensive operation: it takes a team of 10 men working with a minimal amount of capital (spanners and screwdrivers only) one whole day to assemble one car;
  2. The firm now invests in hydraulic lifting gear (CAPITAL DEEPENING), and this cuts down considerably the amount of time in aligning parts for assembly, reducing the time it takes to complete the assembly operation to, say, one tenth of a day

    The same team of men is now able to assemble 10 cars a day - its productivity has gone up tenfold;

  3. The firm introduces a continuous-flow assembly line with automatically controlled machines (again, capital deepening), which one man can operate. Output increases to, say, 50 cars a day; the productivity of the remaining man has increased from 1 car a day (a one-tenth part of 10 cars) to 50.

    Just as importantly, 9 men have been ‘released’ from the team. Either they too could all be put to work on a similar automated assembly line (capital widening), in which case the total output of the 10 men is now 500 cars per day (10 x 50), compared to 50 before. Alternatively, they could be redeployed outside the car industry, thereby helping to increase output in other sectors of the economy

    Increased productivity thus makes an important contribution to the achievement of higher rates of ECONOMIC GROWTH.


References in periodicals archive ?
Local Trends, Global Threat The drastic downshift in productivity growth in the 2007--2014 period was a worldwide phenomenon experienced in nearly every major economy.
As we see more jobs created in these sectors, our productivity growth will naturally start to rise.
In the fifth article, Gilbert Cette from the Banque de France, Christian Clerc from Universite AixMarseille and Lea Bresson from the Centre National de la Recherche Scientifique and Ecole des Hautes Etudes en Sciences Sociales examine the contribution of ICT diffusion to labour productivity growth in the United States, Canada, the Euro Zone and the United Kingdom.
However, from 1995-2000 to 2000-2005, World labour productivity growth fell but employment change rose which was clearly observed, i.
Productivity Growth over the Past Century with a View of the Future.
Dew-Becker and Gordon [2005] described the importance of productivity growth by saying that a basic tenet of economics science is that productivity growth is the source of growth in income per capita.
That said, the improvement was firmly centred on the manufacturing sector, as service sector productivity growth remained subdued.
Productivity growth is the most important determinant of long-term trends in household income.
The crucial importance of productivity growth for economic growth over time can also be illustrated as follows: In the period from 1948 to 2008, GDP for mainland Norway increased by an average of 3.
2 percentage points of the post-1995 increase in productivity growth for the U.
One way productivity growth occurs is when individual manufacturing plants or places of business increase their workers' output per hour (that is to say, their productivity, and in what follows, "productivity" always means "labor productivity.
Over the past decade, information and communication technology has been a key driver of global productivity growth but, with these latest numbers, one begins to wonder whether ICT's contribution has peaked," says Bart van Ark, director of International Economic Research.

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