Productivity growth is commonly defined as the difference between the percentage change of a measure of output and the percentage change of a measure of inputs used. It is meant to capture the growth in productive efficiency arising from technical progress. Productivity growth is the growth of output not accounted for by the growth of an input or inputs.
Productivity growth is closely related to growth in the standard of living and to business competitiveness. Output growth must come either from growth in inputs or from growth in productivity. Indeed, this is the principle that underlies the basic method of estimating productivity growth. Productivity growth occurs when the growth in outputs exceeds that of inputs.
There are various productivity growth measures. The choice between them depends on the purpose of productivity measurement and, in many instances, on data availability. In general, productivity measures can be grouped into two broad categories.
The first category is single-factor productivity where growth in output is compared with growth of a single input. The most commonly used single-factor productivity measure is labour productivity growth.
Although labour productivity growth is an important measure, it is not the only way to measure gains in productive efficiency. Economic performance as measured by labour productivity must be interpreted carefully, since these estimates reflect changes in the other inputs (such as capital) in addition to growth in productive efficiency. The production of output requires the combination of all inputs in a technologically feasible manner. Hence, productivity is also measured in a way that compares output with the combined use of all resources, not just labour. For example, the construction of a factory with substantial expenditures on capital equipment but only minimal operating expenditures on labour may generate an apparently impressive labour productivity index. However, their total amortized capital plus labour cost may be much higher than that of a less complex but slightly more labour-intensive factory which yields a smaller labour productivity index yet is more efficient. For these reasons, caution is in order in the interpretation of either rapid gains or slowdowns in labour productivity growth.
The second category is multifactor productivity—the difference in the growth in output minus the growth in a bundle of inputs.
Multifactor productivity growth is often characterized as growth resulting from technical progress. Statistics Canada measures multifactor productivity growth as a residual, that is, the growth of the output that is not due to the growth of labour and capital inputs.
Currently, Statistics Canada groups productivity statistics into the following:
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