What We Talk About When We Talk of Productivity?

Abstract

The common understanding for ‘Productivity’ is quite straightforward: Its value increases if a company either produce more of some goods or services with the same resources (personnel and the rest of productive factors), or produce the same quantities of good and services with less of some of the resources. Or a given mix of both types of moves, including trade-offs between favourable and unfavourable moves. In the above quite intuitive formulation -- which, broadly coincides with experts’ -- you may substitute ‘a company’ by ‘any organisation producing goods or delivering services’, or by an ‘industry’ or economic sector, or by the entire country (the whole of its sectors). Newspapers and media in general talk frequently on productivity. For example, in terms of “...the problem of our economy is that productivity is comparatively low/is-lagging-behind (and here the figure for a productivity index referred to the country)”. Or “…There is a need for serious reforms be undertaken addressed to increase productivity, in order our economy become more competitive and so…”; or “...industry’s Unions and Employers Association representatives agreed finally on an increase on salaries for this year equal to the last year increase in productivity less half a point. The agreement comes subject to...”. In any case, data on productivity levels - be it at an industry or country level - have last years become one familiar component in the media news and in socio-political debate. Do those data on productivity (usually referred to labour productivity) talk us actually of productivity in the sense stated at the beginning, which is the implicit meaning media and experts transmit about? Surprisingly the answer is: not actually. That in spite of the fact that those data are presented as out-of-discussion, since the acknowledged source for them are some official statistics institution, national or international, as Eurostat - for the EU countries, OECD, BLS (US), ...etc.By way of example: According to Eurostat, the EU’s country with the highest labour productivity level in 2013 was Luxembourg: 163,9; and the following one in the ranking was Ireland (135,5). Quite below appear Germany (107), France (116) and Spain (111), for example. One certainly gets surprised by reading that Luxembourg workers are about 64% more efficient that German workers. Where are those Luxembourg’s set of factories or services companies whose employees work with a so much productivity (that is, producing so much more goods o delivering so much more services per-person) that their German counterparts? Direct observations show that obviously this is not the case. The above productivity differences, 163,9 vs. 107 are against all evidence. Or the above indexes do not refer actually to the common-knowledge concept of productivity stated at the beginning - in spite they being so used in the media and the political arena. Then, what do actually mean those ‘productivity indexes’ for such and such country? How are they in fact calculated by the specialised agencies (first the nationals ones, then the Eurostat, OECD, etc.)? The present notes, written for non-professionals, try to answer such questions. They start by presenting a summary on the way economists and statisticians calculate the more frequently used productivity measures, at enterprises level -- namely, Total productivity and Labour productivity -- which are the conceptual basis. And then, attention is driven to how their adaptations to sector (‘industry’) and whole-country level are calculated by statistics agencies. This allows finally to discuss and make clear the real meaning of these indexes, and so to prevent against the frequently misleading use and interpretation of productivity statistical data in the media and the socio-political arena that are leading to distorted conclusions regarding the real world.