Measuring Productivity

  1. 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?
  2. jcsd
  3. mfb

    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.
  4. 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

    Last edited: Nov 11, 2012
  5. mfb

    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".
  6. 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? ^^
  7. mfb

    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.
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