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What Is a Productivity Model?

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  • Written By: John Lister
  • Edited By: S. Pike
  • Last Modified Date: 07 November 2016
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A productivity model is a tool used in economics. It deals with the relationship between the resources used in production and the final output. This measures productivity: the efficiency with which the resources are used. There are many different example of a productivity model, both covering different factors and giving different weight to various factors.

A particular productivity model usually falls into one of three categories. These are models based on a specific company, models based on an entire industry, and models based on an entire national economy. In comparing two rival models, it is fairest to compare those from the same category only. For example, a model of an economy is inherently subject to much greater uncertainty and room for error than a model of a specific company.

The aim of any productivity model is to establish a mathematical relationship between the input resources and the output product. This could establish a pattern such as 10 staff plus one assembly line plus 100 lengths of wood equals 25 finished chairs each day. The model would include an estimate of the relationship between the different factors. Somebody using the model could then calculate the expected output if, for example, there were 12 staff and 150 lengths of wood. A more accurate model includes more detail about limitations to the mathematic formula: for example, there may only be room for 15 staff on the assembly line, meaning that hiring a 16th staff member won't immediately increase output without other adjustments.

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A productivity model is a more complicated and detailed version of a production function. A production function is a simplistic mathematical equation that also translates input resources into output. The difference is that a production function allows for only one variable input. A production function for the previous example might account only for the effect that increasing or decreasing staff numbers has on the number of chairs made.

One significant limitation of a productivity model is inflation. This is an issue if the output is measured by value rather than by quantity, as price increases may give the impression of a higher output even if the same number of units is produced. In many cases, particularly with an individual business, this is automatically corrected for by inflationary effects on the costs of resources. In the case of an industry or an entire economy, it is more likely that resource costs and output values will be affected by inflation at differing rates, thus causing a problem with direct comparisons.

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