Productivity

Productivity is a fundamental economic concept that measures how efficiently resources are used to produce goods or services. It is defined “as the ratio, in volume, between the output of a good or service and the resources employed to obtain it” (CES, 2017, p.3). This notion makes it possible to assess how a company, a sector, or an entire economy uses its resources to create wealth.

Productivity gains are crucial for an economy, because they allow an increase in the production of goods and services without requiring additional resources. This translates into sustainable economic growth, which is essential for improving the living standards of residents and workers. When companies become more productive, they can reduce production costs, which may positively impact the prices of goods and services for consumers. Moreover, productivity gains can also lead to higher wages and better working conditions, directly benefiting workers. In the long term, a more productive economy is better equipped to innovate, invest in new technologies, and face economic challenges, thereby contributing to greater collective prosperity.

Productivity is often perceived as a simple concept, while, in reality, it is complex and multidimensional. It is not limited to a single economic measure, as its effects and determinants are difficult to pinpoint. At the macroeconomic level, several productivity indices are commonly used, each referring to one of the factors of production, such as labor, capital, technological progress, or energy. These factors are linked to indicators of wealth creation, for example, gross value added or gross output. For instance, labor productivity is the ratio between the wealth created and the volume of labor required to obtain it. Similarly, capital productivity measures the wealth created in relation to the volume of capital used in the production process. A third commonly used measure is total factor productivity (TFP). TFP is a residual obtained by subtracting the weighted contribution of labor and capital from productivity growth. It represents what these two factors do not explain and is often equated with technological progress. However, it would be more accurate to say that technological progress is a determinant of TFP. The latter encompasses everything that improves the productive combination of labor and capital, such as innovation, economies of scale, work organization, and better management.

At the company level, productivity becomes more tangible and is often associated with competitiveness. While macroeconomic analysts use, for example, value added as a measure of wealth created, companies may use more concrete units of measurement, such as the number of units produced or files processed. These alternative measures can complement traditional measures to assess productivity at the macroeconomic level. Similarly, inputs can be defined more concretely at the company level, making the concept of productivity more accessible and applicable in practice.