Productivity Primer

Introduction

This page provides an introduction to the main productivity concepts and measures. For more extensive and technical material see Australia's productivity performance and Productivity issues.

What is productivity?

Productivity is a measure of the rate at which outputs of goods and services are produced per unit of input (labour, capital, raw materials, etc). It is calculated as the ratio of the quantity of outputs produced to some measure of the quantity of inputs used.

Productivity measures are used at the level of firms, industries and entire economies. Depending on the context and the selection of input and output measures, productivity calculations can have different interpretations.

Productivity can have connotations of minimising the use of inputs - for example, reflecting efficient production processes that minimise waste. Equally, productivity can have connotations of maximising output - reflecting the use of resources in the production of goods and services that add the most value.

Productivity is a 'supply-side' measure, capturing technical production relationships between inputs and outputs. But, implicitly, it is also about the production of goods and services that are desired, valued and in demand.

Evidence of productivity growth usually means that better ways have been found to create more output from given inputs. For example, the introduction of new technologies means that inputs can be used in ways that generate a greater quantity of outputs or new, higher-value products.

At a very broad level, productivity measures are often used to indicate the capacity of a nation to harness its human and physical resources to generate economic growth.