what is productivity 
productivity is a measure of performance that compares the output of a product with the input or resources required to produce it the input may be labor equipment or money the u s government focuses on labor productivity economic productivity is calculated as a ratio of gross domestic product gdp to hours worked labor productivity is analyzed by sector to identify trends in job growth wages and technological advances in the business world productivity is a measure of the efficiency of a company s production process it is calculated by measuring the number of units of a product produced relative to labor hours or by measuring net sales relative to labor hours corporate profits and shareholder returns are directly linked to productivity growth investopedia danie drankwaterunderstanding productivityeconomists see productivity as the key source of economic growth and competitiveness whether it is being measured in a business an industry or a nation a country s ability to improve its standard of living depends on its ability to raise its output per worker this does not necessarily mean that every worker works harder it means that some combination of improvements in equipment the production process and the work environment enables workers overall to increase their production economists use productivity growth to model the productive capacity of economies and determine their capacity utilization rates this in turn is used to forecast business cycles and predict future levels of gdp growth in addition production capacity and utilization are used to assess demand and inflationary pressures 4 types of productivity measuresthe most commonly reported productivity measure is labor productivity published by the bureau of labor statistics this is based on the ratio of gdp to total hours worked in the economy labor productivity growth comes from increases in the amount of capital available to each worker called capital deepening the education and experience of the workforce labor composition and improvements in technology multi factor productivity growth 1however productivity is not necessarily a reliable indicator of the health of an economy at a given point in time for example during the 2009 recession in the united states output and hours worked were both falling while productivity was growing that is hours worked were falling faster than output 2gains in productivity can occur both in recessions and in expansions as it did in the late 1990s so one needs to take economic context into account when analyzing productivity data 3many factors impact a country s productivity investment in plant and equipment innovation improvements in supply chain logistics education enterprise and competition all effect productivity the solow residual which is usually referred to as total factor productivity measures the portion of an economy s output growth that cannot be attributed to the accumulation of capital and labor it is interpreted as the contribution to economic growth made by managerial technological strategic and financial innovations also known as multi factor productivity mfp this measure of economic performance compares the number of goods and services produced to the number of combined inputs used to produce those goods and services inputs can include labor capital energy materials and purchased services 4capital as a productivity measure looks at how efficiently physical capital is being used to create goods or services physical capital includes tangible items such as office equipment labor materials warehouse supplies and transportation equipment capital productivity is calculated by subtracting liabilities from physical capital you then divide the sales number by the difference a higher capital productivity number shows that physical capital is being used efficiently in the creation of goods and services while a lower capital productivity number shows the opposite productivity by materials measures output compared to the amount of materials consumed materials consumed can be heat fuel or chemicals used in the process of creating a product or service it analyzes the output generated per unit of material consumed productivity and investment