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App. B—Commissioned Background Papers

7

interpreting mere increases in wage rates, because they enter into value added,

as evidences of increased “labor productivity”. The grandly labelled “total

factor productivity”, on the interpretations of resulting

other hand, changes both

is so overly aggregative as to make difficult and highly vulnerable.

Specifically, how is one to at fixed product prices” to present changes in deflated

interpret changes in its ratio of “product value

“total

costs at

profit

margins,

fixed factor prices”?

or

changes

in

the

ratio

Do they re-

of

product

price to of other

factor price indexes, or changes in product-mix, or changes relevant factors including some aspects of productivity?

in

a

variety

In addition to such erroneous concepts and measures, prevailing discussions of productivity problems and remedial policies are also undermined by highly vulnerable deductions about the causes of apparent changes in productivity levels and by dubious claims about the effects of productivity adjustments on costs

and profitability.

As a matter of

value

added

per

man-hour,

or

total

fact, findings that factor productivity

output per man-hour, or had increased or decreased

by 5 per cent last year would this change; or how rewarding improve future performance.

reveal nothing to management or burdensome it was; or what

about: what had caused might be done to

In order to serve the practical requirements of management, a productivity measurement and analysis system must encompass all of the inputs whose inter-

acting contributions determine the

level

production

operations.

For

this

purpose,

in

a

wide

array

of

industries

utilizes

the

of output and

one

approach

concept

of

a

the effectiveness of which has been applied “network of productivity

relationships”.

As shown in Figure 2,

it encompasses the six components which

management can manipulate in seeking to representing the input requirements per

improve unit of

production efficiency:

three

output

of

materials,

labor

and

(2) capital goods;

are combined with management could,

and one for

three more representing the proportions in which these

another. example,

The latter obviously need to be substitute more highly processed

included because inputs in place

(2)

Fixed investment is related to capacity rather than to output, however, because

that is what capital goods provide. entailing varying levels of idleness

Actual output may then vary with

of

such

equipment.

In

measuring

demand, the pro-

portions in which the major inputs are combined with one another, however, labor and materials inputs are compared not with total fixed investment but with actively-utilized fixed investment, i.e., with fixed investment adjusted for the ratio of output to capacity.

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