Engineering Economics

productivity in the economy

Productivity is not just an economic criterion and indicator. Productivity is a very important source of growth and competitiveness in the countries of the world. There is a clear difference between developing and developed countries in the rate of labor productivity. The highest labor productivity in the world today belongs to developed countries. Given the importance of productivity, in this article we intend to answer the question of what is productivity in economics in simple language, so stay with us.


What is productivity in an economy?

Economic productivity is a measure of the efficiency of economic activities in a society. Productivity in an economy measures output per unit of input (labor, capital, or other resource). In economics, the ratio of GDP to hours worked is used in most cases to calculate productivity. Productivity has a broader concept than an economic measure.

At the company level, productivity is a measure of the efficiency of a production process. This metric is usually calculated by the ratio of the number of units produced or the company’s net sales to the hours worked by employees. This criterion expresses the way resources and factors of production are used in a given period of time. Productivity has various effects on economic performance. These effects are listed below.

Technology change
Scale change
Changing the way resources are used

In general, the factors that increase economic productivity can be classified as follows.

Use resources more efficiently
technological growth
Optimal allocation of economic resources
“Economies of Scale” in production
Different definitions of productivity

In the economic literature, different definitions of productivity have been given. Here are some of the most important and valid definitions of productivity.

The change obtained in the amount of output versus the resources used
The ratio of output to input

Standards of performance or strength and authority of an organization in the production of goods and services
The ratio between reasonable outputs and reasonable inputs
The degree of effective use of factors of production
How much material resources, manpower and other factors are used in the organization
A comparison between the quantity of goods or services produced and the amount of resources used to produce those goods

Labor productivity

Labor productivity measures the output in a country’s economy in one hour. In other words, labor productivity shows how much Gross domestic product is created by one hour of labour, by the workers employed in the production process. Labor productivity can be increased by actions in the organisation. With an increase in work experience, the productivity of the female worker generally increases.

On the other hand, the departure of skilled workers and the replacement of new workers reduces the level of productivity of the female worker in the organisation. Therefore, firing employees and hiring new people may have a negative impact on labor productivity. The most important ways to improve the work productivity of the organization can be classified as follows.

Requiring employees to participate in targeted trainings required by the organization
Use of new methods of production and services
On-the-job training of employees
Continuous assessment of work productivity

Labor productivity is useful to companies in that it is a measure of the performance of workers. Labor productivity can be used to determine standard productivity levels. Productivity also helps companies identify key steps to improve the level of productivity required for the organization.

Productivity advantages

Productivity has many benefits for different groups. There are three different views on the benefits of productivity. These views examine the value of improving productivity in the system from an economic point of view. These three opinions are listed below.

Consumers/Workforce Perspective
corporate point of view
Governments point of view

These elements will be explained below.

Consumers / Workforce

Increasing productivity at the micro level improves the living standards of consumers and the workforce. The more efficient the system, the fewer inputs (labour, land, and capital) are needed to produce goods. This can reduce the cost of producing goods and increase the competitiveness of the company. Also, improving labor productivity reduces the number of man-hours required for production.


Firms that can create higher system productivity are able to produce more outputs with the same or less inputs. In simpler terms, higher productivity equals better profit out of production. Therefore, increasing the productivity of the labor force allows for better treatment of the labor force through higher wages. Improving productivity also increases business competitiveness.


High economic growth leads to growth in tax revenues for governments. This allows governments to invest more in infrastructure and social services. In many countries of the world, instead of directly engaging in economic activities, governments try to increase production and income in society through measures such as improving the business environment. Improving the business environment provides the basis for improving productivity. The increase in production and incomes in society also provides the basis for increasing tax revenues for the government.

Frequently asked questions about productivity

In the following, frequently asked questions in the field of productivity will be discussed.

What does productivity mean?

Productivity is a measure of the level of efficiency in a production process. Productivity is generally defined as the ratio of total output to total inputs in a production process.

What is workplace productivity?

Workplace productivity refers to the amount of work done in a specific period of time. Depending on the nature of the company, production can be measured by various factors such as the number of customers, the number of phone calls made, or sales.

How do you improve personal productivity?

Listed below are some commonsense ways to increase personal productivity.

Rank all tasks in order of importance and perform them one by one
Do your hardest tasks first
Take designated breaks between tasks to increase overall productivity
Exercising regularly.

Follow a healthy diet
What is the difference between labor productivity and total factor productivity?

Labor productivity means the level of production of goods or services per unit of time. This type of productivity shows the efficiency of workers in producing goods or providing services in terms of the time they spend. In this definition, apart from the time of entry, no other input factor is considered.

However, total factor productivity means the level of production in terms of the weighted average of the two main production inputs (labor and capital). Total factor productivity is calculated by dividing total output by the weighted average of time and capital. So, TFP takes into account the effect of two inputs, labor and capital, but labor productivity takes into account the effect of labor only.

What determines worker productivity?

The answer to this question is very intuitive. The first factor determining labor productivity is human capital. Human capital is the accumulated knowledge (from education), skills and experience that a worker possesses in the economy. Typically, the higher the average level of education in an economy, the higher the accumulated human capital and labor productivity


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