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.