In essence, productivity measurements serve as scorecards of the effective use of resources. Business leaders are concerned with productivity as it relates to competitiveness: If two firms both have the same level of output but one requires less input because of higher productivity, that one will be able to charge a lower price and consequently increase its share of the market. Or that firm might elect to charge the same price, thereby reaping a greater profit. Government leaders are concerned with national productivity because of the close relationship between productivity and a nation’s standard of living. High levels of productivity are largely responsible for the relatively high standards of living enjoyed by people in industrial nations. Furthermore, wage and price increases not accompanied by productivity increases tend to create inflationary pressures on a nation’s economy.
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