Purposes of productivity measurement

Productivity is frequently described as a proportion of volume production measurement to volume input usage measurement. While there is no consensus on this overall concept, a glance at the literature on productivity and its multiple applications shows very rapidly that there is no single objective for productivity, nor a single measure. The aims of measuring efficiency include:


Technical change is a frequently declared goal of evaluating productivity growth. Technology has been defined as' the presently recognized methods of turning funds into economically required outputs' (Griliches, 1987) and appears either in its disembodied shape (such as fresh blueprints, science findings, fresh organizational methods) or reflected in fresh products (developments in the layout and performance of fresh vintages of capital goods and intermediate components). The connection is not simple despite the frequent explicit or implicit combination of productivity policies with technical change.


Conceptually, the search to identify effectiveness improvements is distinct from the identification of technical change. In an engineering context, full effectiveness implies that a manufacturing method has attained the highest quantity of output that is physically achievable with present technology and provided a set quantity of outputs (Diewert and Lawrence, 1999).
Consequently, improvements in technical efficiency are a move towards "best exercise" or the elimination of technical and organizational inefficiencies. However, not every type of technical efficiency makes financial sense, and this is reflected by the concept of allocative efficiency, which means profit-maximizing behavior on the company's side. One states that effectiveness benefits can be attributed either to enhanced effectiveness in individual institutions that make up the sector or to a change in productivity measurement when it comes to business stage.

Real cost savings

A pragmatic way of describing the nature of measured shift in productivity.
Although distinct kinds of shift in effectiveness, technical change and economies of scale can be conceptually isolated, this continues a challenging job in reality. Typically, productivity is evaluated residually and this residual reflects not only the above-mentioned variables, but also shifts in all types of capacity utilization, learning-by-doing and measuring mistakes.
Harberger (1998) reiterated the statement that behind productivity development there are a countless sources and labeled actual price savings. In this context, measuring productivity in reality could be seen as a search to define actual manufacturing price savings.

Benchmarking production processes

Comparisons of productivity policies for particular manufacturing procedures can help recognize inefficiencies in the sector of business economics.
The appropriate productivity measures are typically articulated in extremely particular and extremely particular physical units (e.g. vehicles per day, passenger-miles per individual). This fulfills the objective of factory-tofactory comparisons, but has the drawback that it is hard to mix or aggregate the resulting productivity steps.

Living standards

Productivity measurement is a main component in evaluating living standards. A straightforward instance is earnings per capita, likely the most common measure of living norms: earnings per individual in an economy differs immediately with one measure of labor productivity, added importance per working hour. Measuring labor productivity in this context enables to better comprehend living standards growth. Another instance is the Multifactor Productivity (MFP) long-term trend. This index is helpful in evaluating the fundamental productive ability ("prospective production") of an economy, itself an significant measure of economic growth potential and inflationary pressures.

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