App. B—Commissioned Background Papers
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
fixed factor prices”?
Do they re-
price to of other
factor price indexes, or changes in product-mix, or changes relevant factors including some aspects of productivity?
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
As a matter of
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
of output and
the effectiveness of which has been applied “network of productivity
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
(2) capital goods;
are combined with management could,
and one for
three more representing the proportions in which these
The latter obviously need to be substitute more highly processed
included because inputs in place
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
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.