Chapter 20: Productivity Measurement

Performance can be measured in many dimensions. A major long-term performance measure is productivity, i.e., producing more outputs relative to inputs employed. Productivity improvement can come about in several ways. It could reflect reductions in inefficiency using existing technology, a shift in technological knowledge and capabilities, and/or differences in environmental or operating circumstances that affect input/output use. An example of the latter is a transportation firm operating in adverse terrain. It will require more inputs per ton of cargo moved than firms operating in easy terrain; this is separate from questions of technological prowess. The concept of productivity of greatest importance is that of technological change or “shifts” in productive abilities. Improving efficiency using existing knowledge will encounter limits. The real long-term advances in industries' and society's wealth are the shifts in productive abilities. Hence, productivity performance is not only of interest to firms, but to society generally.