Box A. The Importance of Productivity
Productivity increases translate to lower cost per
unit, which typically results in lower prices for
consumers—particularly when there is industry competition. Thus,
productivity increases improve the standard of living as lower prices allow
consumers to purchase more per dollar of income—with other factors
remaining constant. Productivity increases can also mean higher profits for
the transportation companies and higher labor compensation. There are two
main measures of transportation productivity—labor productivity
(single-factor) and multifactor productivity.
Such measures are critical to assessing how
effectively we are enhancing the performance of our transportation system.
Single-factor v. Multifactor Productivity1
The ratio of output to the most critical input is the
most basic measure of productivity. In car manufacturing, for example,
productivity can be measured as the ratio of cars produced (the output) to
the number of hours worked (the input). This type of productivity measure
is known as labor productivity—the most commonly used
single-factor measure of productivity. In agriculture, a productivity
measure might be the ratio of bushels of wheat (the output) to acres
planted (the input). This single-factor measure is know as land
productivity. In single-factor productivity measures, other inputs, such as
capital or fertilizer used, are not considered.
However, such single-factor-based measurements are
limiting because in industries there are often several productive factors
of near equal importance, and the relative importance of these inputs may
shift over time. For example, if the labor force shrinks, the relative
importance of skilled labor to other inputs may become critical.
Multifactor productivity sidesteps this problem
because the combined productivity of all inputs are measured. Simply put,
multifactor productivity is the productivity of all inputs, where the
weights used to estimate the contribution of each input to output are their
shares in the total cost of production.
1 Adapted from
David T. Owyong, Productivity Growth: Theory and Measurement,
APO Productivity Journal,
http://www.apo-tokyo.org/productivity/016_prod.htm as of July 29, 2003.
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