for: Productivity (linguistics) Productivity in economics refers to metrics and measures of output from production processes, per unit of input. Labor productivity, for example, is typically measured as a ratio of output per labor-hour, an input. Productivity may be conceived of as a metrics of the technical or engineering efficiency of production. As such quantitative metrics of input, and sometimes output, are emphasized. Productivity is distinct from metrics of allocative efficiency, which take into account both the value of what is produced and the cost of inputs used, and also distinct from metrics of profitability, which address the difference between the revenues obtained from output and the expense associated with consumption of inputs. (Courbois & Temple 1975, Gollop 1979, Kurosawa 1975, Pineda 1990, Saari 2006)

Economic growth and productivity

Activity can be identified with production and consumption. Production is a process of combining various immaterial and material inputs of production so as to produce tools for consumption. The methods of combining the inputs of production in the process of making output are called technology. Technology can be depicted mathematically by the production function which describes the function between input and output. The production function depicts production performance and productivity is the metrics for it. Measures may be applied with, for example, different technology to improve productivity and to raise production output.

With the help of the production function, it is possible to describe simply the mechanism of economic growth. Economic growth is a production increase achieved by an economic entity or nation. It is usually expressed as an annual growth percentage depicting (real) growth of the company output (per entity) or the national product (per nation). Economic growth is created by two factors so that it is appropriate to talk about the components of growth. These components are an increase in production input and an increase in productivity.(Genesca & Grifell 1992, Saari 2006)

The figure presents an economic growth process. By way of illustration, the proportions shown in the figure are exaggerated. Reviewing the process in subsequent years (periods), one and two, it becomes evident that production has increased from Value T1 to Value T2. Both years can be described by a graph of production functions, each function being named after the respective number of the year, i.e., one and two. Two components are distinguishable in the output increase: the growth caused by an increase in production input and the growth caused by an increase in productivity. Characteristic of the growth effected by an input increase is that the relation between output and input remains unchanged. The output growth corresponding to a shift of the production function is generated by the increase in productivity.