page_title: Productivity
section_title: Benefits of productivity growth
hierarchical_section_title: Productivity / Benefits of productivity growth
context_page_description: Productivity describes various measures of the efficiency of production. Often, a productivity measure is expressed as the ratio of an aggregate output to a single input or an aggregate input used in a production process, i.e. output per unit of input, typically over a specific period of time. Most common example is the labour productivity measure, e.g., such as GDP per worker. There are many different definitions of productivity and the choice among them depends on the purpose of the productivity measurement and/or data availability. The key source of difference between various productivity measures is also usually related to how the outputs and the inputs are aggregated into scalars to obtain such a ratio-type measure of productivity.
  Productivity is a crucial factor in production performance of firms and nations. Increasing national productivity can raise living standards because more real income improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth can also help businesses to be more profitable.
context_section_description: Productivity growth is a crucial source of growth in living standards. Productivity growth means more value is added in production and this means more income is available to be distributed.
  At a firm or industry level, the benefits of productivity growth can be distributed in a number of different ways:
  to the workforce through better wages and conditions;
  to shareholders and superannuation funds through increased profits and dividend distributions;
  to customers through lower prices;
  to the environment through more stringent environmental protection; and
  to governments through increases in tax payments (which can be used to fund social and environmental programs).
  Productivity growth is important to the firm because it means that it can meet its (perhaps growing) obligations to workers, shareholders, and governments (taxes and regulation), and still remain competitive or even improve its competitiveness in the market place. Adding more inputs will not increase the income earned per unit of input (unless there are increasing returns to scale). In fact, it is likely to mean lower average wages and lower rates of profit. But, when there is productivity growth, even the existing commitment of resources generates more output and income. Income generated per unit of input increases. Additional resources are also attracted into production and can be profitably employed.
caption: Labour productivity growth in Australia since 1978, measured by GDP per hour worked (indexed)