Productivity
Categories: Metrics, Company Management
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
And finance Allah Shmoop What is productivity Oh all right
people let's just jump into this one with an example
You make delicious dog muffins not muffins made out of
dog sick people Muffins for four dogs Your dogs love
them Friends always ask you to make the muffins for
their dogs And sometimes you suspect some of your friends
are actually eating the muffins themselves Bob we're looking at
you But whatever making these muffins is you know kind
of your thing So you decide to start a dog
muffin making business you by big bags of all the
ingredients and flour sugar butter salt dog food kale cumin
liverwurst and you know a special secret ingredient You can't
tell people at first While it's just you working out
of your kitchen you can make two batches of muffins
and our orders start coming in more orders than you
can handle You need to make more muffins Teo You
know really grow the business Main problem Your mixer You
have this old tiny mixer that you got when 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 you buy an industrial mixer Unfortunately you can't
get elves to do things for you but we'll talk
about more about getting helpers and a bit non union
elves What you seek for now let's just upgrade your
mixer Now you could make bigger batches of dough with
no extra work which means you could make more muffins
Well you discover that with the new mixer you can
make four batches an hour and you just improved productivity
there Still just one of you though You still spend
just one hour working but you made four batches instead
of two You improved productivity by one hundred percent You
know productivity A professional obstetrician for waterfowl or a professional
actor in native ity pageants who happens to be a
duck You know Hamilton really opened up the options for
casting Well of course there's the economic concept of productivity
We suppose we should talk about that one for a
little bit Okay that leads us to the title card
here Pro activity like productivity measures how much stuff you
can make with the labour you put into it It's
sort of about how you leverage technology and or machinery
to make the efforts of mankind be worth the more
When you do something that lets you make more stuff
with the same amount of labour that's an improvement in
productivity This Khun B new technology you know like the
upgraded mixer here Or it could be a new process
like Think Henry Ford's Model T assembly line thing Need
more Alright to show you what we mean Let's step
into our time machine for a sex Hundreds of years
ago to make a shirt one person would spend months
weaving and sewing one shirt 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 them to
make one shirt 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 you know whatever And this process of improvement continues
today as a I R Artificial intelligence and automation improves
factories which then need fewer and fewer employees While still
making more and more cards and stuff right Maybe the
robots are preparing to take over Maybe but for now
we get all that stuff Yeah back to your muffin
growing 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 industrial mixer You
still have room in your oven The problem While you
just can't get work fast enough getting all the ingredients
doing the cooking sorting through the orders Well there's just
no way to make more than four batches an hour
if it's on ly you the sole proprietor doing all
this stuff Well the fix you hire a helper Well
now you just doubled your output again You collectively together
you two you're making eight batches an hour But you
didn't change the productivity of your business Instead you just
added employment or another body There's two humans working now
One two That's it So you were able to go
from four batches an hour Tow eight But productivity remain
the same The ratio one human four batches So here
let's break down the math for a minute and we'll
show you how productivity stayed Same Yep You're working one
hour And your assistant or else there is working the
same hour So total hours work too The finance world
Well these air known as man hours Or maybe it's
more PC to calm people hours or human hours It's
a measure of how much labor gets put into a
product to humans Each working one hour is too Well
just call him man hours Yeah So to get productivity
divide output by man hours and you've got eight batches
and then you've got two men ours Divide output by
the amount of hours worked and you get four batches
an hour Well your output per man hour is still
the same as it was when it was just you
You increase the output because you increase the labour you
put into it Employment went up productivity stayed the same
Your business And while it continues to expand along the
way you make improvements to increase productivity new equipment better
processes Meanwhile you also add to employment you know hiring
new workers to increase output even more And why is
this such a big thing Well if you have to
hire lots and lots of workers to put out more
product Your profit margins aren't going to go up like
when you have a machine that does the same repetitive
motion again and again and again Usually the cost of
power That machine is just the electricity or whatever in
a little bit of maintenance and cleaning And that's it
Where is when you have a human being Particularly lots
of them Well they want raises and benefits and they
unionize and then stop If you don't do everything they
want them to dio any profit margins Well then kind
of stay the same or go down It's a tough
tough slog So machinery in this sentence is your friend
and you have to love it or well you know
it won't love you back now The only thing you
need to worry about well keeping your secret ingredient a
secret Well OK two things to worry about there Someday
the very near future There might be a robot coming
for your job You know what We're betting on it 00:05:52.724 --> [endTime] Actually