Measuring Productivity

1. luis20

53
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 inputs

This 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?

Staff: Mentor

If you need more intermediate inputs to add the same value, something is worse, so you might want some index to go down.

3. luis20

53
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: Nov 11, 2012

Staff: Mentor

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. luis20

53
Yes, but my teacher suggested this measure:

value added / (labour + capital + intermediate inputs)

which is:

(output - a) / input

This is my actually question, is he wrong? ^^

Staff: Mentor

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.