"Productivity" ⁽¹⁾

Productivity, Economic

Productivity in economics is the ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output of some category of goods divided by the total input of, say, labor or raw materials. In principle, any input can be used in the denominator of the productivity ratio. Thus, one can speak of the productivity of land, labor, capital, or subcategories of any of these factors of production. One may also speak of the productivity of a certain type of fuel or raw material or may combine inputs to determine the productivity of labor and capital together or of all factors combined.

Labor is by far the commonest of the factors used in measuring productivity. One reason for this is, of course, the relatively large share of labor costs in the value of most products. A second reason is that labor inputs are measured more easily than certain others, such as capital. This is especially true if by measurement one means simply counting heads and neglecting differences among workers in levels of skill and intensity of work. In addition, statistics of employment and man-hours are often readily available, while information on other productive factors may be difficult to obtain. Not least important in explaining the emphasis on labor as an input is the fact that, historically, technological advance has made itself felt through the displacement of labor-that is, through increases in labor productivity-rather than through the displacement of other factors. Some kinds of labor productivity measures are thus valuable as indicators of this process and of the resulting improvements in man's material well-being.

The productivity of land, though it receives considerably less attention than the productivity of labor, has been o historical interest. In ancient and preindustrial times the products of the soil comprised the bulk of total output and land productivity thus constituted the major ingredient in a people's standard of living. Soil of low productivity could, and over much of the Earth still does, mean poverty for a region's inhabitants. It is, however, no longer generally believed, as it was in past centuries, that a country's economic well-being is inevitably tied to the productive powers of the land, and the productive potential of the land itself has proved to be not fixed but greatly expandable through the use of modern agricultural methods. Moreover, industrialization, where it has taken place, has greatly reduced man's dependence on agriculture. These circumstances, together with expanding opportunities for trade, have enabled some countries to overcome in substantial degree the handicaps of a meagre agricultural endowment.

The productivity of capital-plant, equipment, tools, and other physical aids-is a subject of long-standing interest to economists, though concern with its empirical aspects is of more recent origin. Improved statistical reporting and the availability of data in a few industrially advanced countries, notably since World War 11, have encouraged systematic efforts to measure the productivity of this factor. Compared with achievements in measuring labor productivity, however, the progress realized has been quite limited. There are considerable theoretical and practical difficulties to be overcome.

(1) The New Encyclopedia Britannica- 15th edition - Macropedai Volume 15 Creating Value Where It Counts - Peter G.W. Keen - page 27-28

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