Productivity

Productivity is a measure of how efficiently a company, industry, or society uses inputs, or factors of production (e.g., labor, energy, capital) to generate products and services. A number of methods can be used to measure productivity. In a factory, productivity might be measured based on the number of man-hours to produce a good, and in the service sector, a common measure of productivity would be revenue per employee, that is, the total amount of revenue [Page 1314]generated by an employee divided by that employee's salary It should be noted that, because output is more difficult to measure in the services sector, productivity measurements in that sector tend to be less reliable than is the case in manufacturing.

Technology in the workplace is having a significant impact on productivity, especially in the United States. In 2008 over 75 percent of economic growth came from technological change; by 2030 it may account for 80–90 percent of a country's economic growth.

Productivity is a central issue in global business. Productivity is driven by a number of forces, including technological and organizational innovation, interest rates and availability of capital for investment, the level of entrepreneurialism within a society, and, more recently, scale and effectiveness of outsourcing activity undertaken by a society's corporate community in order to realize economies of specialization. Because it is a crucial component in the degree of competitiveness of one country relative to another, productivity is an important indicator of how attractive a country is as a host for foreign direct investments as well as how able one country will be in gaining foreign markets.

The Industrial Revolution from the mid-19th to the early 20th century saw an unprecedented rise in productivity, first in England and then within the United States. Labor-saving technology, innovation in organizing work and process flow, and the coming of the mass production revolution continually raised the upper limit of efficiency with which factors of production were used to create final products and services. Productivity grew, not simply because of the introduction of new types of production technology onto the factory floor, but also in the ability of enterprises to effectively link this technology to all phases of business operations, including supply, distribution, and marketing.

By the 1970s, certain industries that regularly expanded their productivity, such as power generation, reached the technological limit to these increases. Similar barriers to productivity growth are anticipated in computers and information technology by 2020. At that point, semiconductor chips reach the point of diminishing returns to specialization and Moore's Law begins to break down. Another technological revolution will then be required, involving a new generation of advanced materials and hardware [Page 1315]to break through these barriers and set semiconductors on a new path of expanding productivity

Within the United States, the trend rate of labor productivity in the post-World War II period went through three phases: rapid growth—annual average rate (AAR) of 3.2 percent—from the late 1940s to 1973; slower growth (AAR 1.5 percent) from 1973 to 1994; and an acceleration in growth (AAR 2.5 percent) from 1995 to 2005. The two decades following the war saw rapid and effective development of productivity-enhancing innovation, part of which originated prior to and during World War II. The decline in productivity during the 1970s and 1980s came in the wake of a technological slowdown by the large corporations in such traditionally productivity-enhancing areas as petrochemicals, advanced materials, and mechanical systems, in part the result of increasing costs of R&D; it was also because of the continued inability of companies to effectively integrate the output of an emerging information and communications sector (ICT) across the functional areas of business activity.

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