Dictionary Definition
productivity
Noun
1 the quality of being productive or having the
power to produce [syn: productiveness] [ant:
unproductiveness]
2 (economics) the ratio of the quantity and
quality of units produced to the labor per unit of time
User Contributed Dictionary
English
Pronunciation
Noun
productivityTranslations
- French: productivité
Extensive Definition
Productivity in economics refers to measures
of output from production processes, per unit of input. Labor
productivity, for example, is typically measured as a ratio of
output per labor-hour, an input. Productivity may be conceived of
as a measure of the technical or engineering efficiency of
production. As such quantitative measures of input, and sometimes
output, are emphasized. Productivity is distinct from measures of
allocative
efficiency, which take into account both the value of what is
produced and the cost of inputs used, and also distinct from
measures of profitability, which address the difference between the
revenues obtained from output and the expense associated with
consumption of inputs.
Economic Growth and Productivity
Economic activity can be identified with
production and consumption. Production is a process of combining
various immaterial and material inputs of production so as to
produce tools for consumption. The way of combining the inputs of
production in the process of making output is called technology.
Technology can be depicted mathematically by the production
function which describes the function between input and output. The
production function depicts production performance and productivity
is the measure of it.
By help of the production function, it is
possible to describe simply the mechanism of economic growth.
Economic growth is a production increase achieved by an economic
community. It is usually expressed as an annual growth percentage
depicting (real) growth of the national product. Economic growth is
created by two factors so that it is appropriate to talk about the
components of growth. These components are an increase in
production input and an increase in productivity.
The figure presents an economic growth process.
By way of illustration, the proportions shown in the figure are
exaggerated. Reviewing the process in subsequent years (periods),
one and two, it becomes evident that production has increased from
Value T1 to Value T2. Both years can be described by a graph of
production functions, each function being named after the
respective number of the year, i.e., one and two. Two components
are distinguishable in the output increase: the growth caused by an
increase in production input and the growth caused by an increase
in productivity. Characteristic of the growth effected by an input
increase is that the relation between output and input remains
unchanged. The output growth corresponding to a shift of the
production function is generated by the increase in
productivity.
Accordingly, an increase in productivity is
characterised by a shift of the production function and a
consequent change to the output/input relation. The formula of
total productivity is normally written as follows:
- Total productivity = Output quantity / Input quantity
According to this formula, changes in input and
output have to be measured inclusive of both quantitative and
qualitative changes. (Jorgenson
and Griliches
1967). In practice, quantitative and qualitative changes take place
when relative quantities and relative prices of different input and
output factors alter. In order to accentuate qualitative changes in
output and input, the formula of total productivity shall be
written as follows:
- Total productivity = Output quality and quantity / Input quality and quantity
Main processes of a company
A company can be divided into sub-processes in
different ways; yet, the following five are identified as main
process, each with a logic, objectives, theory and key figures of
its own. It is important to examine each of them individually, yet,
as a part of the whole, in order to be able to measure and
understand them. The main processes of a company are as follows:
- real process
- income distribution process
- production process
- monetary process
- market value process
Real process generates the production output, and
it can be described by means of the production function. It refers
to a series of events in production in which production inputs of
different quality and quantity are combined into products of
different quality and quantity. Products can be physical goods,
immaterial services and most often combinations of both. The
characteristics created into the product by the manufacturer imply
surplus value to the consumer, and on the basis of the price this
value is shared by the consumer and the producer in the
marketplace. This is the mechanism through which surplus value
originates to the consumer and the producer likewise. Surplus value
to the producer is a result of the real process, and measured
proportionally it means productivity.
Income distribution process of the production
refers to a series of events in which the unit prices of
constant-quality products and inputs alter causing a change in
income distribution among those participating in the exchange. The
magnitude of the change in income distribution is directly
proportionate to the change in prices of the output and inputs and
to their quantities. Productivity gains are distributed, for
example, to customers as lower product prices or to staff as higher
pay. Davis has deliberated (Davis 1955) the phenomenon of
productivity, measurement of productivity, distribution of
productivity gains, and how to measure such gains. He refers to an
article (1947, Journal of Accountancy, Feb. p. 94) suggesting that
the measurement of productivity shall be developed so that it ”will
indicate increases or decreases in the productivity of the company
and also the distribution of the ’fruits of production’ among all
parties at interest”. According to Davis, the price system is a
mechanism through which productivity gains are distributed, and
besides the business enterprise, receiving parties may consist of
its customers, staff and the suppliers of production inputs. In
this article, the concept of ”distribution of the fruits of
production” by Davis is simply referred to as production income
distribution or shorter still as distribution.
The production process consists of the real
process and the income distribution process. A result and a
criterion of success of the production process is profitability.
The profitability of production is the share of the real process
result the producer has been able to keep to himself in the income
distribution process. Factors describing the production process are
the components of profitability, i.e., returns and costs. They
differ from the factors of the real process in that the components
of profitability are given at nominal prices whereas in the real
process the factors are at fixed prices.
Monetary process refers to events related to
financing the business. Market value process refers to a series of
events in which investors determine the market value of the company
in the investment markets.
Surplus value as a measure of production profitability
The scale of success run by a going concern is
manifold, and there are no criteria that might be universally
applicable to success. Nevertheless, there is one criterion by
which we can generalise the rate of success in production. This
criterion is the ability to produce surplus value. As a criterion
of profitability, surplus value refers to the difference between
returns and costs, taking into consideration the costs of equity in
addition to the costs included in the profit and loss statement as
usual. Surplus value indicates that the output has more value than
the sacrifice made for it, in other words, the output value is
higher than the value (production costs) of the used inputs. If the
surplus value is positive, the owner’s profit expectation has been
surpassed.
The table presents a surplus value calculation.
This basic example is a simplified profitability calculation used
for illustration and modelling. Even as reduced, it comprises all
phenomena of a real measuring situation and most importantly the
change in the output-input mix between two periods. Hence, the
basic example works as an illustrative “scale model” of production
without any features of a real measuring situation being lost. In
practice, there may be hundreds of products and inputs but the
logic of measuring does not differ from that presented in the basic
example.
Both the absolute and relative surplus value have
been calculated in the example. Absolute value is the difference of
the output and input values and the relative value is their
relation, respectively. The surplus value calculation in the
example is at a nominal price, calculated at the market price of
each period.
Measurement results can be illustrated by models
and graphic presentations. The following figure illustrates the
connections between the processes by means of indexes describing
the change. A presentation by means of an index is illustrative
because the magnitudes of the changes are commensurate. Figures are
from the above calculation example of the production model.
(Loggerenberg van et al. 1982. Saari 2004, 2006).
The nine most central key figures depicting
changes in production performance can be presented as shown in
Figure. Vertical lines depict the key figures of the real process,
production process and income distribution process. Key figures in
the production process are a result of the real process and the
income distribution process. Horizontal lines show the changes in
input and output processes and their impact on profitability. The
logic behind the figure is simple. Squares in the corners refer to
initial calculation data. Profitability figures are obtained by
dividing the output figures by the input figures in each process.
After this, the production process figures are obtained by
multiplying the figures of the real and income distribution
processes.
Depicting the development by time series
Development in the real process, income distribution process and production process can be illustrated by means of time series. The principle of a time series is to describe, for example, the profitability of production annually by means of a relative surplus value and also to explain how profitability was produced as a consequence of productivity development and income distribution. A time series can be composed using the chain indexes as seen in the following.Now the intention is to draw up the time series
for the ten periods in order to express the annual profitability of
production by help of productivity and income distribution
development. With the time series it is possible to prove that
productivity of the real process is the distributable result of
production, and profitability is the share remaining in the company
after income distribution between the company and interested
parties participating in the exchange.
The graph shows how profitability depends on the
development of productivity and income distribution. Productivity
figures are fictional but in practice they are perfectly feasible
indicating an annual growth of 1.5 per cent on average. Growth
potentials in productivity vary greatly by industry, and as a
whole, they are directly proportionate to the technical development
in the branch. Fast-developing industries attain stronger growth in
productivity. This is a traditional way of thinking. Today we
understand that human and social capitals together with competition
have a significant impact on productivity growth. In any case,
productivity grows in small steps. By the accurate measurement of
productivity, it is possible to appreciate these small changes and
create an organisation culture where continuous improvement is a
common value.
Measuring and interpreting partial productivity
Measurement of partial productivity refers to the
measurement solutions which do not meet the requirements of total
productivity measurement, yet, being practicable as indicators of
total productivity. In practice, measurement in production means
measures of partial productivity. In that case, the objects of
measurement are components of total productivity, and interpreted
correctly, these components are indicative of productivity
development. The term of partial productivity illustrates well the
fact that total productivity is only measured partially – or
approximately. In a way, measurements are defective but, by
understanding the logic of total productivity, it is possible to
interpret correctly the results of partial productivity and to
benefit from them in practical situations.Typical solutions of
partial productivity are:
- Single-factor productivity
- Value-added productivity
- Unit cost accounting
- Efficiency ratios
- Managerial control ratio system
Single-factor productivity refers to the
measurement of productivity that is a ratio of output and one input
factor. A most well-known measure of single-factor productivity is
the measure of output per work input, describing work productivity.
Sometimes it is practical to employ the value added as output.
Productivity measured in this way is called Value-added
productivity. Also, productivity can be examined in cost accounting
using Unit costs. Then it is mostly a question of exploiting data
from standard cost accounting for productivity measurements.
Efficiency ratios, which tell something about the ratio between the
value produced and the sacrifices made for it, are available in
large numbers. Managerial control ratio systems are composed of
single measures which are interpreted in parallel with other
measures related to the subject. Ratios may be related to any
success factor of the area of responsibility, such as
profitability, quality, position on the market, etc. Ratios may be
combined to form one whole using simple rules, hence, creating a
key figure system.
The measures of partial productivity are physical
measures, nominal price value measures and fixed price value
measures. These measures differ from one another by the variables
they measure and by the variables excluded from measurements. By
excluding variables from measurement makes it possible to better
focus the measurement on a given variable, yet, this means a more
narrow approach. The table below was compiled to compare the basic
types of measurement. The first column presents the measure types,
the second the variables being measured, and the third column gives
the variables excluded from measurement.
Other aspects of productivity
Productivity studies
Productivity studies analyze technical processes
and engineering relationships such as how much of an output can be
produced in a specified period of time (see also Taylorism).
It is related to the concept of efficiency.
While productivity is the amount of output produced relative to the
amount of resources (time and money) that go into the production,
efficiency is the value of output relative to the cost of inputs
used. Productivity improves when the quantity of output increases
relative to the quantity of input. Efficiency improves, when the
cost of inputs used is reduced relative the value of output. A
change in the price of inputs might lead a firm to change the mix
of inputs used, in order to reduce the cost of inputs used, and
improve efficiency, without actually increasing the quantity of
output relative the quantity of inputs. A change in technology,
however, might allow a firm to increase output with a given
quantity of inputs; such an increase in productivity would be more
technically efficient, but might not reflect any change in
allocative efficiency.
Increases in productivity Companies can increase
productivity in a variety of ways. The most obvious methods involve
automation and computerization which minimize the tasks that must
be performed by employees. Recently, less obvious techniques are
being employed that involve ergonomic design and worker comfort. A
comfortable employee, the theory maintains, can produce more than a
counterpart who struggles through the day. In fact, some studies
claim that measures such as
raising workplace temperature can have a drastic effect on
office productivity. Experiments done by the Japanese Shiseido
corporation also suggested that productivity could be increased by
means of perfuming or deodorising the air conditioning system of
workplaces.
Increases in productivity also can influence
society more broadly, by improving living standards, and creating
income. They are central to the process generating economic
growth and capital
accumulation.
A new theory suggests that the increased
contribution that productivity has on economic growth is largely
due to the relatively high price of technology and its exportation
via trade, as well as domestic use due to high demand, rather than
attributing it to micro economic efficiency theories which tend to
downsize economic growth and reduce labor productivity for the most
part.
Many economists see the economic expansion of the
later 1990s
in the United States as being allowed by the massive increase in
worker productivity that occurred during that period. The growth in
aggregate
supply allowed increases in aggregate
demand and decreases in unemployment at the same
time that inflation
remained stable. Others emphasize drastic changes in patterns of
social behaviour resulting from new communication technologies and
changed male-female relationships.
Labour productivity main article Labour
productivity Labour productivity is generally speaking held to
be the same as the "average product of labour" (average output per
worker or per worker-hour, an output which could be measured in
physical terms or in price terms).
It is not the same as the marginal
product of labour, which refers to the increase in output that
results from a corresponding increase in labour input.
However, some aspects of labour productivity may
be very difficult to measure exactly, or in an unbiased way, such
as:
- the intensity of labour-effort, and the quality of labour effort generally.
- the creative activity involved in producing technical innovations.
- the relative efficiency gains resulting from different systems of management, organisation, co-ordination or engineering.
- the productive effects of some forms of labour on other forms of labour.
One important reason is that these aspects of
productivity refer mainly to its qualitative, rather than
quantitative, dimensions. (should this not be the other way around)
We might be able to observe definite increases in output, even
though we do not know what those increases should be attributed
to.
This insight becomes particularly important when
a large part of what is produced in an economy consists of
services. Management may be very preoccupied with the productivity
of employees, but the productivity gains of management itself might
be very difficult to prove.
This may mean that a lot of what is said about
productivity is based on opinion, rather than empirical evidence.
Modern management literature emphasizes the important effect of the
overall work culture or organisational culture that an enterprise
has. But again the specific effects of any particular culture on
productivity may be unprovable. Tavalis, in his book "Popular
Culture Today", wrote that the constant increase in productivity
during the 90's into present day is leading our culture to
disaster. The family life of many is suffering and true happiness
is being questioned.
Marx on productivity
In Karl Marx's
labour
theory of value, the concept of capital productivity is
rejected as an instance of reification,
and replaced with the concepts of the
organic composition of capital and the value
product of labor.
A sharp distinction is drawn by Marx for the
productivity of labor in terms of physical outputs produced, and
the value or price of those outputs. A small physical output might
create a large value, while a large physical output might create
only a small value - with obvious consequences for the way the
labor producing it would be rewarded in the marketplace.
Moreover if a large output value was created by
people, this did not necessarily have anything to do with their
physical productivity; it could be just due to the favorable
valuation of that output when traded in markets. Therefore, merely
focusing on an output value realised, to assess productivity, might
lead to mistaken conclusions.
In general, Marx rejected the possibility of a
concept of productivity that would be completely neutral and
unbiased by the interests or norms of different social classes. At
best, one could say that objectively, some practices in a society
were generally regarded as more or less productive, or as improving
productivity - irrespective of whether this was really true. In
other words, productivity was always interpreted from some definite
point of view.
Typically, Marx suggested in his critique of
political
economy, only the benefits of raising productivity were focused
on, rather than the human (or environmental) costs involved. Thus,
Marx could even find some sympathy for the Luddites, and he
introduced the critical concept of the rate
of exploitation of human labour power
to balance the obvious economic progress resulting from an increase
in the productive
forces of labor.
Computers and the Productivity Paradox
Robert Solow once stated that "Computers are
everywhere but in the productivity numbers." There seems to be a
productivity paradox associated with computers; their use has
proliferated, yet there have not been any observable increases in
productivity as a result.
One hypothisis to explain this is that computers
are productive, yet their productive gains are realized only after
a lag period, during which complementary capital investments must
be developed to allow for the use of computers to their full
potential.
Another hypothesis states that computers are
simply not very productivity enhancing because they require time, a
scarce complementary human input. This theory holds that although
computers perform a variety of tasks, these tasks are not done in
any particularly new or efficient manner, but rather they are only
done faster.
It has also been argued that computer automation
just facilitates ever more complex bureaucracies and regulation,
and therefor produces a net reduction in real productivity.
Current data does not confirm the validity of
either hypothesis. It could very well be that increases in
productivity due to computers is not captured in GDP measures, but
rather in quality changes and new products.
See also
References
Further Reading
External links
- European Productivity Conference, Scientific Proceedings 30 September- 1 August 2006, Finland
- Productivity: Key to Economic Success Centre for the Study of Living Standards: Provides a comprehensive overview of the productivity issue with a focus on Canada
- Productivity and Costs – Bureau of Labor Statistics United States Department of Labor: contains international comparisons of productivity rates, historical and present
productivity in Bulgarian: Продуктивност
productivity in Catalan: Productivitat
productivity in German: Produktivität
productivity in Spanish: Productividad
productivity in Persian: بهرهوری
productivity in French: Productivité
productivity in Italian: produttività
productivity in Japanese: 生産性
productivity in Portuguese: Produtividade
productivity in Russian:
Производительность
productivity in Albanian: Produktiviteti
productivity in Finnish: Tuottavuus
productivity in Swedish: Produktivitet
productivity in Chinese: 生产力
Synonyms, Antonyms and Related Words
abundance, amperage, amplitude, armipotence, authority, beef, black power, bountifulness, brute
force, charge, charisma, cloud of words,
clout, cogence, cogency, compulsion, copiousness, creativeness, creativity, diffuseness, diffusion, diffusiveness, dint, drive, duress, effect, effectiveness, effectuality, effusion, effusiveness, energy, extravagance, exuberance, fecundity, fertile mind,
fertility, flower
power, fluency, force, force majeure, forcefulness, formlessness, fructiferousness,
fruitfulness, full
blast, full force, generousness, gush, gushing, influence, ingenuity, invention, inventiveness, logorrhea, lushness, luxuriance, macrology, main force, main
strength, mana, might, might and main, mightiness, moxie, muscle power, originality, outpour, overflow, palilogy, pizzazz, plenteousness, plentifulness, pleonasm, poop, potence, potency, potentiality, power, power pack, power
structure, power struggle, powerfulness, pregnancy, pregnant
imagination, prepotency, procreativeness,
prodigality,
productive capacity, productiveness, profuseness, profusion, prolificacy, prolificity, puissance, pull, punch, push, rampancy, rankness, redundancy, reiteration, reiterativeness,
repetition for effect, repetitiveness, richness, sinew, steam, strength, strong arm, superabundance, superfluity, superflux, superiority, superpower, swarmingness, talkativeness, tautology, teeming
imagination, teeming womb, teemingness, tirade, validity, vehemence, vigor, vim, virility, virtue, virulence, vitality, wattage, weight