PRODUCTIVITY

in economics, 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, labour 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, labour, 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 labour and capital together or of all factors combined. The latter type of ratio is called total factor or multifactor productivity, and changes in it over time reflect the net saving of inputs per unit of output and thus increases in productive efficiency. It is sometimes also called the residual, since it reflects that portion of the growth of output that is not explained by increases in measured inputs. The partial productivity ratios of output to single inputs reflect not only changing productive efficiency but also the substitution of one factor for anothere.g., capital goods or energy for labour. Labour is by far the most common of the factors used in measuring productivity. One reason for this is, of course, the relatively large share of labour costs in the value of most products. A second reason is that labour 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 labour-hours are often readily available, while information on other productive factors may be difficult to obtain. Although ratios of output to persons engaged in production or to labour-hours are referred to as labour productivity, the term does not imply that labour is solely responsible for changes in the ratio. Improvements in output per unit of labour may be due to increased quality and efficiency of the human factor but also to many other variables discussed later. There is special interest in labour productivity measures, however, since human beings are the end as well as a means of production. The productivity of land, though it receives considerably less attention than the productivity of labour, has been of historical interest. In ancient and preindustrial times the products of the soil constituted 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 people'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 capitalplant, equipment, tools, and other physical aidsis 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 some industrially advanced countries, notably since World War II, have encouraged systematic efforts to measure the productivity of this factor. Compared with achievements in measuring labour productivity, however, the progress realized has been quite limited. There are considerable theoretical and practical difficulties to be overcome. in economics, a measure of productive efficiency calculated as the ratio of what is produced to what is required to produce it. The inputs taken as the denominator of the ratio are usually the traditional factors of productionland, labour, and capitaltaken singly or in the aggregate. In practice, productivity calculations are seldom made for land or capital for reasons both practical and theoretical. For example, the productivity of a given capital input, say a machine, depends on the valuation given the machine. Such a valuation, however, is extremely difficult to determine, even in relation to another machine of observably different capacity. Cost is not a guide, for a radical technological improvement may have yielded greater capacity for the same cost; yet capacity alone is not sufficient, for account should be taken of cost, along with various other factors. Labour, on the other hand, is in most cases easily quantified, as by a simple counting of workers engaged on a particular product. More fundamentally, the experience of industrial nations has been that the effects of increasing productivity show themselves chiefly in the use of labour. Technological improvements have tended to displace labour rather than the other factors of production. Productivity may be viewed as a measure of efficiency alone at a given moment in economic time, or it may be seen as an indicator of economic development, that is, as an index of growth. The latter possibility flows from the fact that, over the course of development from a primitive extractive economy to a technologically sophisticated one, productivity increases. The pattern of increase typically exhibits a long-term stability, interrupted from time to time by sudden leaps that are taken to represent major technological changes. Thus, productivity in Great Britain, Europe, and the United States made great advances following the development of steam power, the railroad, the gasoline motor, the open-hearth furnace, electric power, and so on. A long-term increase in productivity is associated with similar long-term increases in real wages; it is also the case that where real wages rise in the absence of a corresponding increase in productivity, prices rise. A high level of wages in a given industry may lead to the substitution of capital for labour. This last effect is sometimes given as the explanation for the rapid mechanization of industry in the United States in the 19th century, when labour was relatively scarce and thus expensive. By the same token, in densely populated, underdeveloped countries the cheapness of labour discourages investment in productivity-enhancing capital goods. Additional reading General works dealing with productivity and its measurement include John W. Kendrick, Understanding Productivity (1977); John W. Kendrick and Elliot S. Grossman, Productivity in the United States (1980); Jean Fourasti, La Productivit, 10th ed. (1980); and Gerhart E. Reuss, Produktivittsanalyse: konomische Grundlagen und statistische Methodik (1960). See also United States. Bureau of Labor Statistics, Productivity: A Selected Annotated Bibliography (irregular); and Trends in Multifactor Productivity, 194881 (1983), updated annually by the news release Multifactor Productivity Measures. Estimates of the growth of output, inputs, and productivity are presented in the OECD Economic Outlook (semiannual), providing coverage for major countries of the world. In Edward F. Denison, Trends in American Economic Growth, 19291982 (1985), the author uses the growth accounting method that he pioneered. An early work on international comparisons of output and productivity is Colin Clark, The Conditions of Economic Progress, 3rd ed. (1957, reprinted 1983). Later works include Edward F. Denison, Why Growth Rates Differ: Postwar Experience in Nine Western Countries (1967)updated by John W. Kendrick, "International Comparison of Recent Productivity Trends, in William Fellner (ed.), Essays in Contemporary Economic Problems (1981); Angus Maddison, Growth and Slowdown in Advanced Capitalist Economies: Techniques of Quantitative Assessment, Journal of Economic Literature, 25(2):64998 (June 1987), and the same author's Phases of Capitalist Development (1982). World-wide comparisons are made in Irving A. Kravis and Robert E. Lipsey, The Diffusion of Economic Growth in the World Economy, 195080, in John W. Kendrick (ed.), International Comparisons of Productivity and Causes of the Slowdown (1984). The convergence thesis is examined in William J. Baumol, Productivity Growth, Convergence, and Welfare: What the Long-Run Data Show, The American Economic Review, 76(5):107285 (December 1986). Marvin Frankel John W. Kendrick