Impacts of Productivity on Output

Productivity, or the efficiency of production, is important because it can drive increases in output and improvements in living standards.

Learning Objective

Develop a model to measure productivity

Key Points

Productivity is generally measured as the ratio of the total output to total input.
In an economy, higher productivity leads to higher real income, the ability to enjoy more leisure time, and better social services, such as health and education–all leading to higher living standards.
Surplus value refers to the difference between returns and costs. The higher is surplus value; the more productive is the process.
Small differences in productivity between countries can compound, leading to large differences in prosperity in the long run.

Terms

Surplus value
The part of the new value made by production that is taken by enterprises as generic gross profit.
productivity
The state of being productive, fertile, or efficient; the rate at which goods or services are produced by a standard population of workers.

Example

From 1964-65 to 1999-2000, labor productivity in Australia's market sector grew at a compound annual rate of 2.4%. The contribution of growing capital intensity of IT to growth in labor productivity has been generally rising over time. Indeed, during the latter part of the 1990s, it accounted for the bulk of the contribution of rising capital intensity and has clearly played a major role in the growth of Australia's labor productivity. Thus, the growth in labor productivity, and the role of IT in this, has clearly been a factor in Australia's continued competitiveness in the global economy.

Full Text

Defining Productivity

Productivity is a measure of the efficiency of production. Productivity is a ratio of production output to what is required to produce it (inputs). The measure of productivity is defined as a total output per one unit of a total input.

Productivity

Productivity is a measure of the efficiency of production.

In order to obtain a measurable form of productivity, operationalization of the concept is necessary. In explaining and operationalizing, a set of production models are used. A production model is a numerical expression of the production process that is based on production data (i.e., measured data in the form of prices and quantities of inputs and outputs0.

Production Income Model

There are no criteria that might be universally applicable to success. Nevertheless, there is one criterion by which we can generalize 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.

Impact on Output

When there is productivity growth, even the existing commitment of resources generates more output and income. Income generated per unit of input increases. Additional resources are also attracted into production and can be profitably employed.

At the national level, productivity growth raises living standards because more real income improves people's ability to purchase goods and services (whether they are necessities or luxuries), enjoy leisure, improve housing and education and contribute to social and environmental programs.

Over long periods of time, small differences in rates of productivity growth compound, such as interest in a bank account, and can make an enormous difference to a society's prosperity. Nothing contributes more to the reduction of poverty, increases in leisure, and to the country's ability to finance education, public health, environment, and the arts.

[ edit ]

Prev Concept

Reducing Waste and Environmental Impacts

Productivity Gains from Software

Next Concept