Productivity is a measure of the efficiency with which a country combines capital and labour to produce more with the same level of factor inputs. We commonly focus on labour productivity measured by output per person employed or output per person hour
Factor Inputs (land, labour and capital) + Factor Productivity (efficiency) = Output
Productivity is an important determinant of living standards – it quantifies how an economy uses the resources it has available, by relating the quantity of inputs to output. As the adage goes, productivity isn't everything, but in the long run it's almost everything.
Economic Gains from Higher Productivity
Higher productivity can lead to:
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