Quezon City, Philippines.
Improvement in productivity has positive economic effects both at the micro and macro levels.
Productivity is an average measure of the efficiency of production. It can be expressed as the ratio of output to inputs used in the production process, i.e. output per unit of input. When all outputs and inputs are included in the productivity measure it is called total factor productivity (TFP).
From the recent production function studies conducted for the US economy it has been found that labor’s share is about 70 per cent and capital’s share is about 30 per cent of national income. We can obtain the growth in output, (i.e. GDP) by using the following growth equation.
% ∆ GDP = % ∆TFP + 0.70 (% ∆L) + 0.30 (%∆K)
GDP = Gross Domestic Product
∆TFP = Change in total factor productivity
∆L = Increase in the quantity of labour
∆K = Increase in the capital stock