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The Role of Productivity in Economics   Term Paper ID:27815 Click to get this paper

Essay Subject: States that while productivity is critical to economic success, it is very difficult to clearly, universally, & accurately define or measure. Also concludes that macroeconomic factors may play a major role in productivity.... More...

10 Pages / 2250 Words 4 sources, 18 Citations, TURABIAN Format $40.00 Return to List of Papers

Paper Abstract: States that while productivity is critical to economic success, it is very difficult to clearly, universally, & accurately define or measure. Also concludes that macroeconomic factors may play a major role in productivity. Paper Introduction: Productivity is critical to economic success. It is comparable in importance as an economic factor to employment rates, prices, and gross national product. It is also a key element in economic competitiveness. As such, productivity must be taken into account in assessing the health and prospects of any nation's economy. Nobel Prize-winning economist Milton Friedman has said that "Nothing is more important for the long-run economic welfare of a country than improving productivity". Because productivity is so important to economic measurement, it is necessary to define it precisely. Unless we can agree on what productivity is and how we should measure it, it is difficult, if not impossible, to predict, control, and evaluate it. Both public and private analysts need precise definitions and measurements of productivity in order to make polic Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. What is productivity? economy. (New York: Viking), 1992.Fitch, Donald S., Increasing Productivity in the Microcomputer Age. Added to this was therising price of resources on the international market, and the growingdominance of the service sector over the manufacturing sector. (Baltimore: Johns Hopkins), 1984.----------------------- [1] Donald S. [4] Levitan and Werneke, op. An economy with low rates of productivitygrowth simply cannot compete with other more robustly productive economies. No longer can it be taken forgranted, as it was immediately after World War II, that the United Stateswill lead the world economically. cit., p. Lester, Robert M. [2] Sar A. 27. More and more, productivity is not confined to asingle country, but shared among two or more economies. [7] Dertouzos, et al., op. [14] Dertouzos, et al., op. 37. Both public and private analysts needprecise definitions and measurements of productivity in order to makepolicy decisions with regard to individual businesses and national economicbehavior. (Reading, MA: Addison-Wesley), 1982.Levitan, Sar A. 27. [17] Ibid., pp. cit., p. In a healthy economy,productivity is high and increasing at a steady, measurable rate. The idea here is to relate output to more than just the single inputfactor of labor. 12. 7. 13. Productivity is critical to economic success. However, in actual fact, manymore factors are included in the multifactor measurement, and there is byno means a consensus on which ones should be used and which should be givenmore or less weight. Increasingly, economists arearguing that such costs must be included in any measurement of productivityto make it meaningful in a modern economy. There are two other factors affecting productivity measurement thatmust be taken into account. [13] Levitan and Wernke, op. This has beenespecially true in the manufacturing sector, which is "responsible for theweakening of American competitiveness in key industries in internationalmarkets".[15] This weakening occurred at the same time that internationaltrade was becoming an important factor in the U.S. 9. Because productivity is a relationship, it is always dynamic, and isaffected by many factors, such as technology, education, workers' skills,plant and equipment usage, and changes in organizational structure andmanagement approach. productivitygrowth has been declining in recent years compared with trends in the twodecades following World War II".[13] Both labor productivity andmultifactor productivity trends have been fairly consistent in theirdownward movement. The reason for this has been a downward trend in American productivityin recent years. For example, the productivity indexfor the base year 1977 was 1 , while the productivity index for 1982 was1 1. The net result of this evaluation is a series of figures, published ona quarterly basis, representing "the output per hour of all persons in theprivate business economy, the non-farm business sector, and inmanufacturing".[6] The Bureau of Labor Statistics also estimates theoutput per employee in domestic non-financial corporations. In other words, given the globalization of competition, managers mustbegin to see productivity in macroeconomic terms. (Cambridge, MA: MIT Press), 199 , p. This meant that their plant and equipment would be moremodern than those of the U.S., and that their economies would be morereceptive to new technologies and training methods, and experiments withmanagerial style. This is becauseinvestment in its broadest sense is crucial for productivity growth, and itis increasingly the macroeconomic environment that determines the level andnature of investments: "Some analysts have concluded that macroeconomicfactors are the dominant influence on the nation's productivityperformance."[18] If managers are to improve productivity, then, they mustthink beyond their own industries and even beyond their own economies. Many factors account for this disparity in American versus foreignproductivity growth. Productivity is difficult to define. This data is then compliedby the Bureau of Labor Statistics in national income accounts, and is usedto assess the level of national productivity. and Werneke, Diane, Productivity: Problems, Prospects, and Policies. "Improvement in productivity performance isa bedrock requirement for enhancing America's ability to compete."[1 ] This, then, brings us to the question of productivity as an element ofeconomic competitiveness. 13. The most common measurement of productivity in the internationalmarketplace is gross domestic product per employee. cit., p. It is by improving the productive performance of the Americaneconomy".[16] For the American manager, then, productivity is a key to successfulcompetition, and the key to productivity is investment. The post-war economies of Europe and Asia are not only new markets forAmerica, they are new competitors as well; in this competition,productivity plays a key role. 9. (Baltimore: Johns Hopkins), 1984, p. Labor productivity measurements are useful for purposes of estimatingoverall trends in the economy, but, as we have noted, they do not take intoaccount many factors affecting productivity. Though the current growth rate has increased, it still remains belowthat of the years before 1973.[14] During this same period, theproductivity growth rates of Europe and Japan have consistently risen. In general,while the labor productivity index reflects the relationship of per-hourlabor input to output, the multifactor index reflects the relationship ofper-hour labor and capital input to output. Newer plant and equipment, greater capitalinvestment in research and development, and better trained and bettermanaged work forces abroad cut into America's economic dominance.Suddenly, America found itself having to compete in a global market withrival economies that were catching up with it, and in some cases,surpassing it. In anunhealthy economy, declining productivity is often an important leadingindicator of the downward trend.[3] The next important question to be answered, then, is: How do wemeasure productivity? Some economists now say that productivity should be measuredin relation to the total amount of worker input available to an economy,rather than the amount of worker input actually being used.[4] Whilekeeping these additional factors in mind, we will try to discussproductivity measurement in simpler terms for purposes of this paper. Between 1973 and 1979 it dropped almost tozero. A quick look atthe facts will explain this reluctance to admit that the world economy ischanging. "In the absence of a consensus about treatingdifficult conceptual and data problems, there are almost as many estimatesof multifactor productivity as there are analysts dealing with thesubject."[9] This lack of consensus is perhaps the greatest drawback tothe multifactor productivity approach to measurement. For this reason, productivity cannot be measured likethe number of unemployed or the dollar amount of the gross nationalproduct. The most common measure of productivity is called labor productivity.This is the relationship between hours worked and the dollar-value ofoutput. One final point about productivity measurement must be made. Using thiskind of data, trends in productivity can be traced, and predictions madeabout future economic growth. From 1948 to 1973 the annual productivity growth rateaveraged about two percent. Dertouzos, Richard K. This compares the quantityof output of the nation's industries with the Population Survey andnational employment statistics to achieve a national labor productivitymeasurement. Coming to this realization has beendifficult for American managers and government officials. This method is very common because labor isrequired to produce almost every kind of goods and services. As we have just noted, competition must now bemeasured in terms of a global economy. [9] Ibid., p. The second factor is waste.Should we, for example, factor in unemployment as an element ofproductivity? [15] Levitan and Wernke, op. Productivity, then, is always a relationship. cit., p. Itcan be broadly defined as the relationship between the quantity of goodsand services produced in a given period of time and the amount of labor,capital, and resources used in this process of production.[2] In itsbroadest terms, then, productivity is the relationship between a unit ofinput and the quantity of output produced by it. [3] Michael L. 13. (New York: Viking), 1992, p.185. [1 ] Editors of Fortune, Working Smarter. cit., p. [5] Ibid., p. In this way, levels of productivity can be compared, and changes inthe productivity index can be calculated in percentages. In every case, measuring productivity will be somewhateasier in manufacturing, where the relationship between labor input andproduct output is fairly easy to identify. (Cambridge, MA: MIT Press), 199 .Editors of Fortune, Working Smarter. Individual industriessuch as manufacturing, mining, transporta-tion, communications, publicutilities, services and, trade provide the raw data on input and outputwhich are used to measure overall productivity. It does not accurately reflect,for example, the role of technology in work, which is becoming more andmore important.[5] Measurements of labor productivity are usually derived from statisticssupplied by industry and by the federal government. Most economists agree that productivity is an essential element ininternational competition. Among these effectsare inflation, a worsening balance of trade, higher unemployment, aninability to achieve social goals such as environmental quality, andreduced national security as the economy falls behind.[12] In view ofthis, American managers have placed greater emphasis on productivity as anelement of competitiveness in the last two decades. Also, productivitymust be measured against the economies of other producing nations if it isto have real meaning in the global marketplace as a measure of the strengthof a nation's economy. [18] Ibid., p. [6] Ibid., p. BibliographyDertouzos, Michael L., Lester, Richard K., Solow, Robert M., and the MIT Commission on Industrial Productivity, Made in America: Regaining the Productive Edge. This makes itpossible for economists to estimate the growth or decline in productivityfor individual industries as well as for the national economy. What all these concepts of productivity have in common is arelationship between the level of input required to produce, and the levelof output of production. [12] Fitch, op. Fitch, Increasing Productivity in the Microcomputer Age.(Reading, MA: Addison-Wesley), 1982, p. 35-36. Though this is a verygeneral measurement, it does enable us to obtain a rough idea of therelative levels of productivity among nations, and this is becomingincreasingly important as the global economy expands and becomes moreintegrated. [8] Levitan and Wernke, op. Another method of measuringproductivity which is more complex is called multifactor productivity.Multifactor productivity takes into account many different elements ofproductivity in order to measure how effectively an economy makes use oflabor and capital inputs into production.[7] In multifactor productivity measurement, economists include theaffects of such factors as new technology, training improve-ments, workermotivation, and changes in management approaches in measuring productivity. 6. Unless we can agree on what productivityis and how we should measure it, it is difficult, if not impossible, topredict, control, and evaluate it. In service industries, theproblem of measurement becomes more complex. Yet we must be able to measure productivity if we are to have anaccurate picture of the health of an economy. These levelsof productivity are expressed as a numerical value representing theproductivity level, or index, in a given period as compared with theproductivity index of a base period. Here the answer must be divided into two parts:productivity measures in manufacturing, and productivity measures inservice industries. First, the American market was eighttimes larger than its closest competitor; second, American technology wassuperior; third, American workers were better educated and trained than anyother; fourth, America was far richer in capital and resources; and fifth,American management was the best organized and the most progressive in theworld.[11] With the emergence of Europe and Asia as modern economic powers, thispicture changed radically. 3. Productivity thus becomes a weapon in international competition, becausethe effects of low productivity can be so devastating. [16] Dertouzos, et al., op. Solow and theMIT Commission on Industrial Productivity, Made in America: Regaining theProductive Edge. All of this depends on a clear definition of productivity andreliable measurements of it. [11] Dertouzos, et al., op. 26. Since 197 ,the percentage of America's gross national product devoted to internationaltrade has doubled, and eighty percent of all new jobs in the U.S. cit., pp. Levitan and Diane Werneke, Productivity: Problems,Prospects, and Policies. economyhave been created in the import-export industries. For anindustrial worker, productivity is the amount of work effort required toaccomplish a task; for a manager it may be the measure of the total outputof his or her department; for an executive, it can be the overallprofitability of an enterprise; and, for a consumer it may be measured inquality of production. 24-25. Other factors such as the rising cost of energy, especially oil,increasing health and safety requirements, and growing governmentregulation contributed to declining American productivity. 35. It has theadvantage of being a simple measure of productivity, but that verysimplicity also creates disadvantages. After World War II, America enjoyed five important advantages overevery other economy in the world. cit., p. The first is the growing demand for socialbenefits, such as clean air and water. cit., p. This is useful since changes in capital investment or newmachinery such as robotics can seriously influence rates of productivity.Since multifactor productivity measurement is more detailed and morereflective of actual productivity relationships, multifactor measurementstend to fluctuate less widely than do labor productivity measurements.Increasingly, economists feel that multifactor productivity is a morecomplete view of real productivity.[8] The Bureau of Labor Statistics has been publishing a multifactorproductivity index since 1983, and economists have come more and more torely upon it as an overall indicator of productivity levels. Theincreasingly global economy makes it important to view productivity in aninternational context. It is also a key element in economic competitiveness.As such, productivity must be taken into account in assessing the healthand prospects of any nation's economy. The numerical value used to represent this relationship is usuallyadjusted for inflation. It is comparable inimportance as an economic factor to employment rates, prices, and grossnational product. 5. Nobel Prize-winning economistMilton Friedman has said that "Nothing is more important for the long-runeconomic welfare of a country than improving productivity".[1] Because productivity is so important to economic measurement, it isnecessary to define it precisely. This concurrence of declining productivity and increasing integrationinto the global market has severely hurt America's ability to compete.Productivity, therefore, stands at the heart of America's internationalcompetitive challenge: "There is only one way to improve the trade balancewhile simultaneously maintaining a high and rising standard of living athome. Despite the fact that, overall, the U.S leads the worldin productivity, "...the evidence is overwhelming that U.S. Investment, inthis sense, means not only capital outlays for plant and equipment, but alarger investment in the American work force and economic infrastructure.Managers must learn to think in long-term approaches to productivity, suchas rebuilding not only private but public resources, improving the qualityof education, and advancing basic scientific research and development.[17]All of these must be seen as investments which will bring returns in futureproductivity growth. After World War II, Europe and Asia had to rebuildtheir economies. cit., p. Meanwhile, the American economic infrastructure wasageing, and management was less open to change. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.