Productivity
Measuring productivity
Productivity is output per unit of input; it is a physical or value ratio, not a profit measure. Single-factor (partial) productivity uses one input; multifactor productivity uses a bundle, usually labour plus capital plus materials, with inputs converted to a common money denominator.
- Total productivity = total output value / total input value.
- Change in productivity = (new - old) / old x 100; use the same basis in numerator and denominator.
- Improvements come from better methods, training, layout, quality (less rework), technology and utilisation, not from simply working longer.
Productivity differs from efficiency (doing things right) and effectiveness (doing the right things). Capacity utilisation is actual output divided by design capacity; it is an input to productivity, not the same thing.
Worked example
A plant makes 8,000 units worth 40 each: output value 3,20,000. Inputs: labour 400 hours at 200 = 80,000; machine 200 hours at 300 = 60,000; material 1,000 kg at 50 = 50,000. Total input 1,90,000. Multifactor productivity = 3,20,000 / 1,90,000 = 1.68. Labour productivity alone = 8,000 / 400 = 20 units per hour. If labour hours rise to 440 with output unchanged, labour productivity falls to 18.18, a 9.1% decline.
Traps
Never divide units of output by rupees of input and call it a ratio without explanation; convert consistently. Do not compare productivity across firms using different product mixes. A rise in output value from price inflation is not a productivity gain.