Productivity

GDP per capita is a rough measure of average living standards or economic well-being and is one of the core indicators of economic performance. (OECD 2008, 14) GDP is, for this purpose, only a very rough measure. Maximizing GDP, in principle, also allows maximizing capital usage. For this reason, GDP is systematically biased in favour of capital intensive production at the expense of knowledge and labour-intensive production. The use of capital in the GDP-measure is considered to be as valuable as the production's ability to pay taxes, profits and labor compensation. The bias of the GDP is actually the difference between the GDP and the producer income. (Saari 2011,10,16)

Trends in U.S. productivity from labor, capital and multi-factor sources over the 1987-2014 period.

The manager or leader of a team can significantly increase productivity in various ways. The outcome of this can produce the following benefits.

As an accounting result the MFP growth is 1.119-0.546-0.541=0.032 or 3.2%.

The residual problem of Multi Factor Productivity was solved by many authors who developed production income formation models where productivity was an integrated factor. For this purpose was needed Total Productivity concept.

When all outputs and inputs are included in the productivity measure it is called total productivity. A valid measurement of total productivity necessitates considering all production inputs. If we omit an input in productivity (or income accounting) this means that the omitted input can be used unlimitedly in production without any impact on accounting results. Because total productivity includes all production inputs, it is used as an integrated variable when we want to explain income formation of the production process.

In the main article is presented the role of total productivity as a variable when explaining how income formation of production is always a balance between income generation and income distribution. The income change created by production function is always distributed to the stakeholders as economic values within the review period.

Labour productivity growth in Australia since 1978, measured by GDP per hour worked (indexed)

Productivity growth is a crucial source of growth in living standards. Productivity growth means more value is added in production and this means more income is available to be distributed.

At a firm or industry level, the benefits of productivity growth can be distributed in a number of different ways:

Productivity growth is important to the firm because it means that it can meet its (perhaps growing) obligations to workers, shareholders, and governments (taxes and regulation), and still remain competitive or even improve its competitiveness in the market place. Adding more inputs will not increase the income earned per unit of input (unless there are increasing returns to scale). In fact, it is likely to mean lower average wages and lower rates of profit. But, when there is productivity growth, even the existing commitment of resources generates more output and income. Income generated per unit of input increases. Additional resources are also attracted into production and can be profitably employed.