Definition Productivity in Economics

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Labour productivity growth is a key dimension of economic performance and an essential driver of changes in living standards. Growth in gross domestic product (GDP) per capita can be broken down into growth in labour productivity, measured as growth in GDP per hour worked, and changes in the extent of labour utilisation, measured as changes in hours worked per capita. High labour productivity growth can reflect greater use of capital, and/or a decrease in the employment of low-productivity workers, or general efficiency gains and innovation.
Although the ratio used to calculate labour productivity provides a measure of the efficiency with which
inputs are used in an economy to produce goods and services, it can be measured in various ways. Labour
productivity is equal to the ratio between a volume measure of output (gross domestic product or gross
value added) and a measure of input use (the total number of hours worked or total employment).3

Labour productivity = volume measure of output / measure of input use
Volume measure of output:
The volume measure of output reflects the goods and services produced by the workforce. Numerator of
the ratio of labour productivity, the volume measure of output is measured either by gross domestic
product (GDP) or gross value added (GVA). Although these two different measures can both be used as
output measures, there is normally a strong correlation between the two (Table 1.2). There is a preference
for value added as taxes are excluded.
Measure of input use:
The measure of input use reflects the time, effort and skills of the workforce. Denominator of the ratio of
labour productivity, the input measure is the most important factor that influences the measure of labour
productivity (Table 1.3). Labour input is measured either by the total number of hours worked of all
persons employed or total employment (head count).

https://data.oecd.org/lprdty/labour-productivity-and-utilisation.htm

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