Productivity Explained

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PRODUCTIVITY EXPLAINED

The National Productivity Institute of South Africa define productivity as, “converting resources (inputs) into products and services (outputs) efficiently, effectively and with optimum utilization of human capital and physical resources for the benefit of society, the economy and the environment.”

This definition is quite comprehensive as it includes the element of human endeavour and development as factors affecting productivity.

A simplified definition of productivity however is generally stated as the quantity and/or quality of output per unit of input produced. For example if a company involved in producing handmade shoes employs 5 people and earn a total revenue (Price X Quantity) of $ 5 000 per month, then its productivity per worker per month is    $ 1 000.

This definition however becomes inadequate given a situation where various factors of production such as land and capital are combined with labour to produce a single unit of output. Due to the complexity involved in measuring productivity both at company and at national level, there are various measures implemented in measuring productivity which are unique to a given industry or country.

In sectors such as construction and agriculture which are labour-intensive, productivity is mainly taken to mean labour productivity. In other industries, the inputs are aggregated into a unit composite function of all factors of production involved known as Multifactor Productivity Measures. It should be noted that productivity is not only for the manufacturing sector but also for the services sector. Sectorial and national productivity is when the increase in productivity at company level is aggregated for all companies which fall under that sector and country respectively.

Whatever measure used in determining the productivity of factors, at any time, the ability to produce more of a given product using the same amount of factors or less is by and large referred to as an increase in productivity. For example in a shoe manufacturing company, if initially one employee produces 20 pairs of shoes per day, an increase in the quantity of pairs (say to 30) pairs per worker per day holding other things constant is what is deemed an increase in productivity. The Organisation for Economic Cooperation and Development, asserts that there is neither a unique purpose for, nor a single measure of productivity.