Importance of Productivity for an Economy and Factors Contributing to Productivity and Its Impact on Sustainable Economic Growth

Importance of productivity for an Economy and factors contributing to productivity and its impact on sustainable Economic Growth

The Definitions of Economic productivity

The economic productivity refers to the cost of factor input and the value of its output. For example if productivity is improved consistently the cost of production or unit cost comedown drastically and there fore it increases consumer welfare as prices comes down.

The measurement of productivity and the problems of measuring productivity

In theory as mentioned above the concept of productivity is straight forward. However, in practice to measure productivity is not easy. This is because, productivity can be increased by unemployed labor or increasing the work day or under severe adverse conditions and there fore productivity can be apparently increased. If this achieved by the above means the productivity is not improved but worsened. There fore the productivity must be approached by the appropriate means not achieved in adverse conditions. In addition, the productivity to measure services is not easy as services output cannot be easily measured accurately. This applicable to education, government services and other service industries.

The main factors affecting productivity in an economy

The productivity of an economy depends on many factors. However, all factors are do not contribute to productivity. However, there are common factors irrespective of the nature of economies boost productivity. The main factor increasing productivity is the availability and the quality of capital and labor resources particularly the skilled and semi-skilled workforce and the flexibility of the labor market. Another factor is the innovate capacity of private and public institutions and the incentives to innovate and consistent technological dynamic development. Another crucial factor contribute to productivity improvement is the level of research and development and the quality of education and training system. In addition, productivity also depends on the level of business taxation and regulatory regime. For example, if business is overly regulated it may have adverse effects on productivity as it may discourage business to invest in productivity enhancing activities because of cost of regulation and risk in investment. In some economies, the amount and quality of natural resources like water, soil quality and other mineral resource availability to greater extent if the majority of economic activity depends on such resources. However, in other economies also will be affected because of oil and other resources are important factor in its cost and quality which determines productivity. Another important factor for long-term productivity growth is the quality of social and physical and technological infra-structure.