5 Types of Productivity

John Spacey, updated on August 15, 2024

Productivity is the amount of output you create with a unit of labor or capital. This is economic gravity whereby it is a fundamental measure of how much value a society, organization, team, employee, facility or machine can produce. The following is a complete explanation.

Labor Productivity

Labor productivity is the amount of value a person creates with an hour, month or year of work. This is key to that person's earnings such as salary or business revenue. In theory, an employer should be able to pay a more productive employee more. At the level of an economy, this does indeed occur as average income tends to rise with productivity growth.

Capital Productivity

Capital productivity is the amount of value created by a dollar of capital input. In this context, capital is a productive asset such as a building, facility, machine, computer or software installation. Naturally, these things are often measured in aggregate as fixed assets. As with labor productivity, capital productivity is fundamental economic gravity that defines the economic efficiency of nations.

Material Productivity

The amount of output you produce for a unit of materials. Materials can include any physical substance that goes into an output such as a product, service or construction project. For example, the water that you use to produce a tomato. Material productivity can be measured for all materials as a dollar amount or can be measured for specific materials by quantity such as weight.

Total Factor Productivity

Total factor productivity, also known as multifactor productivity, is the ratio of output to all inputs including capital, material, labor and energy. This can only be measured in monetary amounts such as dollars. For example, it uses labor costs as opposed to labor hours. Total factor productivity is very similar to more popular metrics such as gross margins and unit costs and therefore isn't used that much.

Personal Productivity

Personal productivity are the outcomes a person can create with their time. Time is a unique resource in that there are only so many hours in a day that can't be extended. You can buy more land, rent more space, hire more employees or buy more equipment but your personal time can't be increased in any given year. As such, producing more in an hour, day or year can have great value to an individual as it allows them to do more with their time. This has created a mini industry of advice and productivity tools designed to help individuals be more productive.

Productivity Improvement

Labor and capital productivity are strongly interrelated. If you invest heavily in capital your labor productivity will tend to go up. A pilot flying a large modern aircraft that carries 500 passengers can produce more value in an hour than a taxi driver in a small car that carries 2 passengers. Likewise, things like education can improve the productivity of capital. A highly education engineer may produce more in an hour using a computer than someone with little formal education. This effectively make the computer more productive. The following are common things that are known to increase productivity.

Productivity vs Efficiency

Productivity is the efficiency of something. The term productivity is most commonly used to describe labor productivity which is the efficiency of an hour of work. This is calculated with the efficiency formula. Likewise, capital, material and total factor productivity are all forms of efficiency.

Formulas

Productivity is always calculated with some variation of the efficiency formula. The following are common examples.

Productivity	=	Output Inputs

Labor Productivity	=	Output Hours Worked

Capital Productivity	=	Output Capital Input

Material Productivity	=	Output Material Input

Total Factor Productivity	=	Output Total Inputs

Personal Productivity	=	Outcomes Hours Consumed

Summary

Productivity is the amount of value you create with a unit of labor, capital, material or energy. This is economic gravity as all people, firms and nations have a limited amount of time or labor each month such that increasing productivity is a primary way to create more value.