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In economics, productivity is the amount of output created (in terms of goods produced or services rendered) produced per unit input used. For instance, labor productivity is typically measured as output per worker or output per labor-hour. With respect to land, the "yield" is equivalent to "land productivity". Some economists write of "capital productivity" (output per unit of capital goods employed), the inverse of the capital/output ratio. "Total factor productivity," sometimes called multifactor productivity, also includes both labor and capital goods in the denominator (weighted by their incomes). Unlike labor productivity, the calculation of both capital productivity and total factor productivity is dependent on a number of doubtful assumptions and is subject to the Cambridge critique. Even measures of land and labor productivity should be used only when conscious of the role of the heterogeneity of these inputs to the production process.
Productivity studies analyse technical processes and engineering relationships such as how much of an output that can be produced in a specified period of time.
It is related to the concept of efficiency, which is the amount of output produced relative to the amount of resources (time and money) that go into the production.
All else constant, it benefits a competitive business to improve productivity, which over time lowers private cost and (hopefully) improves ability to compete and make profit. Of course, this happy state of affairs is often temporary, as increases in productivity become generalized and output prices fall, hurting profits.
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.
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.
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.
Labor productivity is the same as the "average product of labor" (output/worker or worker-hour). It is not the same as the marginal product of labor, which refers to the increase in output that results from an increase in labor input.
- Production, costs, and pricing
- Production theory basics
- Production possibility frontier
- Production function
- Computer-aided manufacturing
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