Productivity and the Economy

Productivity directly impacts the economy. It is defined as the measurement of the efficiency of the production process. It is the relationship between inputs and outputs. This can be applied to the individual factors of production.

Labour Production. This is the most widely used measure and is usually calculated by dividing the total output by the number of workers or the number of hours worked.

Total factor productivity attempts to measure the overall productivity of the inputs used by a firm or a country. The quality of different inputs can change significantly over time. There can also be significant differences in the mix of inputs thus firms and other countries may use different definitions in their inputs especially on capital. The difference in living standards will greatly reflect differences in their productivity.   The higher productivity in a country is good for its economy.