Productivity: Influences of Measurement Aspects - Coursework Example

Productivity: Influences of Measurement Aspects al Affiliation Productivity: Influences of Measurement Aspects Introduction Productivity pertains to the economic measure of prevailing output per unit of input realized. In this regard, inputs are inclusive of capital and labor (fundamental resources), where the output is measured in terms of the gross revenues realized, as well as other key GDP (Gross Domestic Product) components i.e. business inventories. Accordingly, the aspect of productivity can be effectively measured either collectively (on a national economic scale), or viewed in terms of industry-specific outlook. This is in the aim of examining prevailing labor growth trends, technological improvement and wage levels etc. The paper’s aim is to show how various issues pertaining to the measurement of economic output (national, and industry-sector productivity) have contributed to the prevailing perceptions of low levels of productivity across the board. This is concerning labor market contexts, public- and private-sector growth, capital injection, the sourcing of raw materials, and availability of viable market arenas. Productivity in the Contemporary Global Context Definitively, as portrayed by Baumol, Sue and Edward (2002), productivity pertains to the measurement of the overall efficiency, with which a given economy is able to convert limited inputs into valuable outputs. As a concept, it is concerned with the measurement of Gross Domestic Product (GDP), per hour worked in a given period. Accordingly, capital productivity concerns the measurement of GDP pert he unit of capital inputted. Thus, when taken together as measured under more complex methodology, both labor and capital as multi-factor productivity (MFP) processes are measured as the overall GDP per unit of the combined two (Baumol, Sue, & Edward, 2002). Globally, the effects of the recent economic crises and the subsequent recession has affected not only the Western, industrialized states, but also the larger global economy. An important issue as Sexton and Fortura (2007) present, is that the Western world has found itself increasingly facing various major economic hurdles, as a result of the credit crisis that impacted the banking sector; subsequently impacting negatively on all others sectors of the economy. The U.S.A has found itself facing the burden of a major economic recession because of its failure to meet the critical macro-economic goals; essential in the maintenance of a stable economy (Sexton & Fortura, 2007). The macro-economic goals of concern include: - the maintenance of prices at stable levels that are optimally viable for both the consumer-base, and the producers; the achievement of high economic growth rates, and the preservation of high employment rates in terms of human resources (OECD, 2000). As Goldstein (2015) portrays in the article – Maybe the problem with productivity is just in measuring it – the general public perspective portrays that weak productivity has been a prominent disappointment in the contemporary recovery process. As portrayed by the U.S. Labor Department, the level of business-sector productivity has only averaged at just 0.6% in the last four years (Goldstein, 2015). Further input from Janet Yellen, Federal Reserve Chairwoman, also portrays the while expectations are high on the productivity numbers to rise; the prevailing indices have been weak. As she portrayed, “It’s been disappointingly low. A positive aspect of what is fundamentally a disappointment is that the labor market has improved more rapidly than might have been expected given the pace of economic growth” (Goldstein, 2015). This statement portrays the essence that while the general rate of economic growth is slow, some positive aspects have been realized, with the labor market being a critical area of focus (Goldstein, 2015). Importantly to be noted however, is that not everyone is in agreement with the perception that the productivity base has been very weak. Rather, a number of experts are apprehensive that the problem lies with the measurement aspect of overall national productivity (Baumol, Sue, & Edward, 2002). Pointers in this regard include the fact that the overall growth rates in private-sector job creation and labor absorption have been high, outpacing the output realized in all but one of the last four years; as graphically portrayed in Figure 1(Goldstein, 2015). This is remarkable because the presence of such growth rates is not envisaged in the current economic, market environment that is characterized by profit margins that are near record-high and strong profits (Goldstein, 2015). Accordingly, with respect to the capture of pertinent price indices, the aspects of globalization and inter-dependence, as well as technological advancement need to be factored in. This is informed by the fact that governments such as that of the U.S., often make requisite adjustments on overall pricing rates, bringing them down as a measure that is reflective of quality changes made (OECD, 2000). However, the practicability (practical aspect) of implementing such measures is often the problem. As a result, as Sexton and Fortura (2007) further portray, expert opinion is of the view that various captured analysis are possibly incorrect, often being understatements of prevailing productivity gains and out-put growth. Notably is that productivity gains are essential to optimal economic outlook, based upon the fact that they enable greater achievements, with less input. Critical to the discussion is that due to the scarce availability of resources i.e. labor and capital, the modern business sector is constantly concerned on ways of maximizing their (resources’) impacts (Sexton & Fortura, 2007). Productivity Measurement: Issues of Concern An essential aspect in respect to the discussion, as portrayed in the OECD manual (2000),is that technological advancements are the foundation on which various productivity enhancements are achieved i.e. utility of the internet and computers, enhanced workforce skill levels, and improvements in logistics and supply chain management. All these are critical to the overall projections of productivity in terms of industry-sector or national/ global output; essential in the prediction of future rates of GDP growth. In the U.S.A., the Bureau of Labor Statistics is responsible for overall reporting of productivity measures, provided 4 times a year; based upon the ration of national GDP to the total hours worked (OECD, 2000). The presence of multi-factor productivity measurements is essential in the analysis of underlying economic changes. These are essential to analysts in their better understanding of the prevailing driving forces of economics on a large-scale aspect, as opposed to utility of simple partial measurements (OECD, 2000). This hence critically requires understanding of the aspect of labor and capital productivity growth; both of which are intrinsically of interest. Labor productivity growth is of interest in terms of the growth rate achieved, which may be derived from the application/ input of more capital i.e. structures, equipment and machinery, to the production processes present (Baumol, Sue, & Edward, 2002). Also influential is the contributory factor of technological change and advancement, which further influences the overall growth in labor productivity. Hence, in order to adequately evaluate the effects of policies that influence the two aspects differentially, there is need to de-couple the sources of growth; regarding the two aspects (OECD, 2000). It is through utility of MFP measures that this is achievable, providing optimal measurement platforms on which overall productivity can be effectively measured. Hence, productivity is aptly measured in either growth or level terms – GDP. In essence, this growth majorly occurs whenever there is realization of growth in outputs being in excess of inputs utilized (Baumol, Sue, & Edward, 2002) To be noted however is that with GDP, major focus is placed upon the aspect of productivity growth, especially with reference to the comparison of overall productivity rates across various nations and/ or industry sectors (OECD, 2000). Productivity growth, its measure and analysis is thus essential because it is closely related to the enhancement of the prevailing populations’ standards of living. Accordingly, output growth needs to be derived either from growth in productivity and/ or from growth in inputs. Indeed, it is this principle, which underlies the elementary methodology of effectively estimating productivity growth (Sexton & Fortura, 2007). Accordingly, growth in output is often driven by the accrued increase in resources, devoted to the production processes present; or the overall efficiency through which such resources are usually employed. Thus, in the case of output, there is an increase if the total number of hours worked are more, or if the existing labor produces more per hour worked; over a given time-frame (Baumol, Sue, & Edward, 2002). Due to the presence of various productivity measures, in order to effectively counteract the potential inaccuracy expected, there is need to consider the purpose behind the measurement of productivity, as well as the general availability of critical data and/ or information (Sexton & Fortura, 2007) Conclusion Productivity is measured with reference to the rates of inputs injected into the economy, vis-à-vis outputs realized from such activity. This is concerning both the aspects of labor and capital input, which are often distinctly different in terms of not only national outlook, but with regard to specific-sector projections. Productivity measurements are therefore based upon the critical importance of: - technological availability and input; the overall levels of efficiency realized; consideration of real cost savings realized; the benchmarking of production processes, and overall measurement of the prevailing living standards. Hence, aggregate GDP usually measures the accrued returns to both capital and labor, with distributional concerns leading to questions of whether this growth increases over time; especially in relation to real income rates realized. References Baumol, W.J., Sue, A.B. & Edward, N.W. (2002). Productivity and American Leadership. The Long View, MIT Press. Goldstein, S. (20 Mar, 2015). Maybe the problem with productivity is just in measuring it. Marketwatch.com: Capitol Report, (22 Mar, 2015) retrieved from: http://www.marketwatch.com/story/maybe-the-problem-with-productivity-is-just-in-measuring-it-2015-03-20 OECD. (2000). Measurement of Aggregate and Industry-level Productivity Growth. OECD Manual: Measuring Productivity (Statistics). OECD Press. Sexton, R. & Fortura, P. (2007). Exploring Economics, (1st Canadian Ed.). Toronto, ON, Canada: Nelson Thompson Canada Ltd. Appendix Figure 1 [A graphic representation of productivity rates vis-à-vis job growth rates in the American private sector arena; derived from BLS/ Haver.] Read More