Measuring Productivity: 2 Main Multifactor Measures

In summary, there are 2 main multifactor productivity measures: total output / (labour + capital + intermediate inputs) and value added / (labour + capital). However, the teacher suggests using value added / (labour + capital + intermediate inputs) for total productivity, which does not make sense since intermediate inputs do not contribute to value added. Including losses of intermediate inputs in the denominator would be more accurate. The teacher's suggested measure is (output - a) / input, but it may be more appropriate to use (output - a) / (input - a) to account for the amount "a" being included in both the numerator and denominator. The teacher may be incorrect in this measure.
  • #1
luis20
50
0
I found on the internet that there are 2 main multifactor productivity measures:

1) total output / (labour + capital + intermediate inputs)

2) value added / (labour + capital)

, where value added = total output - intermediate inputsThis two measures make sense but my teacher said that if we want total productivity and use value added we should do:

value added / (labour + capital + intermediate inputs)

This measure makes no sense to me, since intermediate inputs do not produce value added.
What do you think?
 
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  • #2
If you need more intermediate inputs to add the same value, something is worse, so you might want some index to go down.
 
  • #3
mfb said:
If you need more intermediate inputs to add the same value, something is worse, so you might want some index to go down.

Yes, I would include losses of intermediate inputs in the denominator. But the amount I took from numerator shouldn't I take from denominator too? (since I know that amount is represented in both numerator and denominator)

I mean, if the original ratio is: output / input, then if I take the amount "a" from output, (and "a" is also included in input), I should take "a" from input, so it would be:

(output - a) / (input - a)

and not:

(output - a) / input

right?
 
Last edited:
  • #4
value added = total output - intermediate inputs - (other variables)

You already use (output - a) / (input - a) in your formula, where a are intermediate inputs and (output-a) is "value added".
 
  • #5
mfb said:
value added = total output - intermediate inputs - (other variables)

You already use (output - a) / (input - a) in your formula, where a are intermediate inputs and (output-a) is "value added".

Yes, but my teacher suggested this measure:

value added / (labour + capital + intermediate inputs)

which is:

(output - a) / inputThis is my actually question, is he wrong? ^^
 
  • #6
If you use "a" as sum of all inputs, it is
(output - input) / input = output/input - 1

That is fine, and the value looks interesting.
 

1. What are the two main multifactor measures used to measure productivity?

The two main multifactor measures used to measure productivity are total factor productivity and partial factor productivity.

2. How is total factor productivity (TFP) calculated?

Total factor productivity is calculated by dividing the total output of an organization by the total input of all factors of production, including labor, capital, and materials.

3. What are the advantages of using total factor productivity as a measure of productivity?

Total factor productivity takes into account the efficiency and effectiveness of all factors of production, providing a more comprehensive measure of productivity. It also allows for comparisons between different industries and countries.

4. How is partial factor productivity (PFP) different from total factor productivity?

Partial factor productivity only considers the output in relation to one specific factor of production, such as labor or capital. This measure is useful for identifying the impact of individual factors on productivity.

5. What are some limitations of using multifactor measures to measure productivity?

Multifactor measures do not take into account external factors such as technological advancements or changes in market demand, which can also affect productivity. Additionally, the data used to calculate these measures may not be readily available or may be difficult to accurately measure.

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