The illustration in the following figure demonstrates an increase in PPF, thus affecting the production function. Production-Possibility Frontier Expansion : In this graph, the prospective production-possibility frontier shifts to the right, implying a higher supply or improved technological production ability of the two goods being discussed in this case guns and butter.
Productivity is represented by production functions, and is the amount of output that can be generated from a set of inputs. Productivity, in economic terms, measures inputs and outputs to derive overall production efficiency within a system.
Simply put, it measures how much can you get out of what you put into a given system. Increased productivity means more output is produced from the same amount of inputs.
In order to generate meaningful information about the productivity of a given system, production functions are used to measure it. Understanding the way in which productivity metrics function, one can more comprehensively grasp the concept and employ it in a meaningful way.
From an economic standpoint, the production function demonstrates the tangible output created as a result of a production process including all tangible inputs. The objective in employing this perspective is to pursue allocative efficiency within the process as opposed to technical or logistical efficiency, as engineers or supply chain managers may be pursuing. This means that the production function identifies optimal inputs and consequent outputs to satisfy the needs of a given population via a particular production process.
While different economic perspectives often identify different factors of production i. Conceptually, the production function makes certain assumptions of the maximum potential production, availability of inputs and demand for outputs to create a boundary of potential production.
This will include the derivation of a marginal product for each factor see , or essentially the extra output that can be created for each additional unit of input. Naturally, this is theoretically subjected to the concept of diminishing marginal returns, where the marginal product of a given input in the figure we are illustrating labor will fall as the starting points for quantity rise.
Product Function : This graph illustrates the way in which a production function identifies the relationship between a quantity of inputs and the resulting output of a given product. This takes into account marginal and average product, which are indicative of the change in efficiency based upon inputs. There are a variety of ways to approach the measuring of productivity in the context of production functions:. Cobb-Douglas Production Function : This is an illustration of a two-input Cobb-Douglas Production Function, where the ability to benchmark an output in comparison to two separate quantities of inputs is feasible.
Over the long term, the only way that GDP per capita can grow continually is if the productivity of the average worker rises or if there are complementary increases in capital. A common measure of U. This measure excludes government workers, because their output is not sold in the market and so their productivity is hard to measure. It also excludes farming, which accounts for only a relatively small share of the U.
Output per Hour Worked in the U. Economy, — Output per hour worked is a measure of worker productivity. In the U. However, these growth-rate differences are only a few percentage points per year. Look carefully to see them in the changing slope of the line.
The average U. Source: U. Department of Labor, Bureau of Labor Statistics. According to the Department of Labor, U. In fact, the rate of productivity measured by the change in output per hour worked averaged 3. That is why employers look for education and on-the-job training. Knowledge and experience increase the human capital of the workers and make them more productive. Feeling productive and actually being productive are two different things.
Using the economic definition of productivity can help us to determine how productive we really are. To see how productivity raises wages, consider the following example. Suppose that you have insufficient capital goods , such as your bare hands or a spoon. Then, it might take you nine hours to dig the hole. If you had a shovel instead, it might have taken you only three hours to dig the hole.
In a perfectly competitive market, labor earns its marginal product. New machines, technologies, and techniques are crucial factors in determining productivity. To take a historical example, consider the economy of the United States in By , only 1. On a percentage basis, agriculture consumed about 60 times as much labor in However, agricultural output is significantly higher today than in the 18th century.
That makes food prices much lower today in real terms , and it frees up workers for other tasks. That is the way economic growth takes place when technology raises the productive capabilities of the people.
Growth in productive capital requires periods of underconsumption. Producers must devote less energy toward making consumable goods so they can build and use new capital goods. For instance, an office worker cannot create web content while setting up a new computer.
These periods of underconsumption need to be funded, which is why businesses need investment for new capital projects. Fourth, as small firms and micro enterprises account for a large proportion of employment, empowering these businesses to be able to seize the opportunities of deepening integration is essential for broad-based productivity growth and social development. SMEs need better access to credit and support services information, marketing, technology and training.
Fifth, last year, the government made significant progress in building strong institutional framework, including adoption of the revised Laws on Enterprises and Investment, for a market-oriented economy. But much needs to be done in and the years to come.
Some successful Asian countries can provide lessons leant to Viet Nam. Q3: What are the lessons learnt from the neighbouring countries? Malaysia, Korea, Singapore and other advanced Asian economies have distinguished themselves in developing their workforce and establishing a competitive position based on productivity.
Each country faced unique challenges, addressed by specific policies and adjusted its national productivity strategy as they developed.
Perhaps, Singapore has the most comprehensive, most institutionalized and most successful system. There are some key lessons Viet Nam can learn from the Singaporean experience: The basis for a productivity focused development strategy is to have a common understanding and agreement among key players government, business, unions, media and others on the principles of such a development strategy.
These include that improvement in productivity create opportunities for employment growth in the long-term; the government must be prepared to provide support to workers and businesses to overcome short-term problems such as labour surplus in some companies and sectors; government, employers and labour should work together to implement productivity improvement measures; workers must be prepared to accept changes in the scope and requirement of their job, in addition to retraining for productivity improvement; and gains from improved productivity must be distributed fairly among businesses, workers and consumers.
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