What is productivity?

Productivity describes output relative to resources used. Measures include products made per working hour in a business or real value added per hour across an economy. Working harder or longer does not necessarily mean higher productivity.

How is productivity measured?

1. Output and input The basic relationship divides output by the input used. If a workshop makes 240 rather than 200 products in 100 working hours, output per hour rises from 2 to 2.4, a 20 percent increase with other conditions unchanged. Product quality and waste rates must also be maintained. 2. Labour productivity Real output per worker or per hour is widely used. Hourly measures better separate differences in working time. Results depend not only on workers’ effort but also on machinery, software, infrastructure, organization and education. 3. Total factor productivity Considering several inputs together produces broader measures. Total factor productivity is associated with output changes not explained by measured input growth. It is not a pure technology indicator: measurement errors and capacity utilization can also affect it.

How can productivity improve?

4. Processes and quality Reducing unnecessary waiting, using appropriate equipment and preventing errors save resources. Producing more by sacrificing safety or quality may not represent genuine improvement. Measuring outcome quality is particularly important in services. 5. Investment and learning Buying technology alone is insufficient. Training, maintenance, data quality and process adaptation are necessary. Small, continuing improvements can also be valuable alongside major investment. 6. Wages and welfare Productivity growth can create room for higher incomes, but wage gains are not automatic. Competition, bargaining power and institutions affect distribution. International and sector comparisons must account for prices, working hours and production structures.