Productivity

An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in revenues or inventories. Productivity measures may be examined collectively (across the whole economy) or viewed industry by industry.

Why is this important? Consider your own personal productivity. What technology would make your job more productive? What reduces your productivity? How is productivity related to cost? To automation? Will automation make your work easier or replace your job?

Example:

You make delicious dog muffins. Not muffins made out of dog. Muffins for dogs. Your dogs love them. Friends always ask you to make the muffins for their dogs. Sometimes you suspect some of your friends are eating the muffins themselves. But whatever, making these muffins is kind of your thing. So you decide to start a dog muffin business. You buy big bags of all the ingredients: flour, sugar, butter, salt, dog food, kale, cumin, liverwurst, and the special secret ingredient. At first, it's just you working out of your kitchen. You can make two batches of muffins an hour. Orders start coming in. More orders than you can handle. You need to make more muffins to really grow the business. The main problem? Your mixer. You have this old, tiny mixer that you got when your Aunt Sally died, trying to climb the Matterhorn.

Sentimental value aside, you need to upgrade the mixer if this business is going to take off. So you take some of your profits and buy an industrial mixer. Unfortunately, you can’t get elves to do things for you. But we’ll talk more about getting helpers in a bit. For now, let’s just upgrade your mixer. Now you can make bigger batches of dough. With no extra work. Which means you can make more muffins. You discover that, with the new mixer, you can make four batches an hour. You just improved productivity. There's still just one of you. You still spent just one hour working. But you made four batches instead of two. You improved productivity by 100%.

Productivity can be new technology, or a new process. To show you what we mean, let’s step into our time machine for a second. Hundreds of years ago, to make a shirt, one person would spend months, weaving and sewing one at a time. Then the industrial revolution happened. People started to use machines to do a lot of the work. They could make hundreds of shirts in the time it used to take to make one. This process has continued regularly over the past couple hundred years: more machines, allowing fewer employees to make more and more shirts, or cars, or dog muffins, or whatever. This process continues today, as A.I. and automation improve, factories need fewer and fewer employees ,while still making more and more stuff.

Back to your growing muffin business. Your dog muffins remain a big hit. Even with the improved productivity, you still get more orders than you can handle. You've got the big mixer. You still have room in your oven. The problem? You just can't work fast enough. Getting all the ingredients, doing the cooking, sorting through the orders. There's just no way to make more than 4 batches an hour if it’s just you. The fix? You hire a helper. Now you just doubled your output again. You’re making 8 batches an hour. But you didn't change productivity; instead, you added employment. Or rather, a unit of employment, or whatever the bean counters would tell you you just did. There are two of you working now, so you were able to go from 4 batches to 8. Employment went up. Productivity stayed the same. Your business continues to expand. Along the way, you make improvements to increase productivity. New equipment. Better processes. Meanwhile, you also add to employment, hiring new workers to increase output even more.

Now the only thing you need to worry about: keeping your secret ingredient...a secret. Well, okay...two things to worry about. Someday, in the very near future, there might be a robot coming for your job.

Related or Semi-related Video

Econ: What is Productivity?0 Views

00:00

And finance Allah Shmoop What is productivity Oh all right

00:07

people let's just jump into this one with an example

00:10

You make delicious dog muffins not muffins made out of

00:14

dog sick people Muffins for four dogs Your dogs love

00:18

them Friends always ask you to make the muffins for

00:20

their dogs And sometimes you suspect some of your friends

00:23

are actually eating the muffins themselves Bob we're looking at

00:26

you But whatever making these muffins is you know kind

00:29

of your thing So you decide to start a dog

00:31

muffin making business you by big bags of all the

00:34

ingredients and flour sugar butter salt dog food kale cumin

00:38

liverwurst and you know a special secret ingredient You can't

00:42

tell people at first While it's just you working out

00:44

of your kitchen you can make two batches of muffins

00:47

and our orders start coming in more orders than you

00:50

can handle You need to make more muffins Teo You

00:52

know really grow the business Main problem Your mixer You

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have this old tiny mixer that you got when Aunt

00:57

Sally died Trying to climb the Matterhorn Sentimental value aside

01:01

you need to upgrade the mixer If this business is

01:04

going to take off So you take some of your

01:06

profits and you buy an industrial mixer Unfortunately you can't

01:10

get elves to do things for you but we'll talk

01:12

about more about getting helpers and a bit non union

01:14

elves What you seek for now let's just upgrade your

01:17

mixer Now you could make bigger batches of dough with

01:19

no extra work which means you could make more muffins

01:23

Well you discover that with the new mixer you can

01:25

make four batches an hour and you just improved productivity

01:29

there Still just one of you though You still spend

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just one hour working but you made four batches instead

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of two You improved productivity by one hundred percent You

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know productivity A professional obstetrician for waterfowl or a professional

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actor in native ity pageants who happens to be a

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duck You know Hamilton really opened up the options for

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casting Well of course there's the economic concept of productivity

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We suppose we should talk about that one for a

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little bit Okay that leads us to the title card

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here Pro activity like productivity measures how much stuff you

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can make with the labour you put into it It's

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sort of about how you leverage technology and or machinery

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to make the efforts of mankind be worth the more

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When you do something that lets you make more stuff

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with the same amount of labour that's an improvement in

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productivity This Khun B new technology you know like the

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upgraded mixer here Or it could be a new process

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like Think Henry Ford's Model T assembly line thing Need

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more Alright to show you what we mean Let's step

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into our time machine for a sex Hundreds of years

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ago to make a shirt one person would spend months

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weaving and sewing one shirt at a time Then the

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Industrial Revolution happened People started to use machines to do

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a lot of the work They could make hundreds of

02:45

shirts in the time it used to take them to

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make one shirt This process has continued regularly over the

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past couple hundred years More machines allowing fewer employees to

02:54

make more and more shirts or cars or dog muffins

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or you know whatever And this process of improvement continues

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today as a I R Artificial intelligence and automation improves

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factories which then need fewer and fewer employees While still

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making more and more cards and stuff right Maybe the

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robots are preparing to take over Maybe but for now

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we get all that stuff Yeah back to your muffin

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growing business Your dog muffins remain a big hit Even

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with the improved productivity you still get more orders than

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you can handle You've got the big industrial mixer You

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still have room in your oven The problem While you

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just can't get work fast enough getting all the ingredients

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doing the cooking sorting through the orders Well there's just

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no way to make more than four batches an hour

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if it's on ly you the sole proprietor doing all

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this stuff Well the fix you hire a helper Well

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now you just doubled your output again You collectively together

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you two you're making eight batches an hour But you

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didn't change the productivity of your business Instead you just

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added employment or another body There's two humans working now

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One two That's it So you were able to go

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from four batches an hour Tow eight But productivity remain

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the same The ratio one human four batches So here

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let's break down the math for a minute and we'll

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show you how productivity stayed Same Yep You're working one

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hour And your assistant or else there is working the

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same hour So total hours work too The finance world

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Well these air known as man hours Or maybe it's

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more PC to calm people hours or human hours It's

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a measure of how much labor gets put into a

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product to humans Each working one hour is too Well

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just call him man hours Yeah So to get productivity

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divide output by man hours and you've got eight batches

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and then you've got two men ours Divide output by

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the amount of hours worked and you get four batches

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an hour Well your output per man hour is still

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the same as it was when it was just you

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You increase the output because you increase the labour you

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put into it Employment went up productivity stayed the same

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Your business And while it continues to expand along the

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way you make improvements to increase productivity new equipment better

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processes Meanwhile you also add to employment you know hiring

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new workers to increase output even more And why is

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this such a big thing Well if you have to

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hire lots and lots of workers to put out more

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product Your profit margins aren't going to go up like

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when you have a machine that does the same repetitive

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motion again and again and again Usually the cost of

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power That machine is just the electricity or whatever in

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a little bit of maintenance and cleaning And that's it

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Where is when you have a human being Particularly lots

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of them Well they want raises and benefits and they

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unionize and then stop If you don't do everything they

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want them to dio any profit margins Well then kind

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of stay the same or go down It's a tough

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tough slog So machinery in this sentence is your friend

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and you have to love it or well you know

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it won't love you back now The only thing you

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need to worry about well keeping your secret ingredient a

05:44

secret Well OK two things to worry about there Someday

05:47

the very near future There might be a robot coming

05:50

for your job You know what We're betting on it 00:05:52.724 --> [endTime] Actually

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