Productivity

Productivity

How well resources (inputs) are used in the production process to generate outputs. Productivity can be measured using various formulae. They include

• Labor productivity

• Capital productivity 

• Productivity rate 

Capital productivity (include formula)

measures how well a firm uses its physical resources (e.g., machinery) 

Capital productivity = total output / total input 

labor productivity (include formula)

measures the efficiency of the workforce 

Labor productivity = total output / number of workers

Productivity rate

measures the degree of efficiency in the use of resources in the production process

Productivity rate = total output / number of capital hours

Benefits of productivity (4Es)

• Economies of scale: reduced costs of production 

• Earnings: higher profits and wages 

• Efficiency: more competitive 

• Evolution

Determinants of productivity rates (TRIES)

• Technology: investment in technologies helps workers be more productive 

• Rivalry: competition incentivises productivity 

• Innovation: commercialization of new ideas and products change work (e.g., remote working) 

• Entrepreneurship: effective leadership and personal motivation of entrepreneurs can drive productivity 

• Skills and experience: education, training and development can increase human capital for increased productivity