Question

Explain productivity. What are some of the reasons that it has increased substantially in recent decades? Why is increasing productivity a good thing?

Answer 1

There are many technological developments that have fed into the significant growth in productivity. The first example is automation technologies that has channelized the capital investment into machineries and helped reduce the dependence upon manual work. It contributed to improve in technology. The second example of technology is the emergence of ERP applications that integrated different functions, SBUs and other components and make them work under the real time environment. It added efficiency, productivity and reduced the delivery lead time. The third example is the development of different quality management practices such as TQM, Lean Sigma and JIT that reduced wastage of different kinds, improved quality and contributed to increase in productivity.
The first policy will be to promote quality management practices. Saving wastes, directly increases the productivity level in the operations. For example, use of Six sigma and lean sigma reduce the wastes as well as defective products to the minimum level. It increases the productivity. The second policy is to adopt technology that can be from open source or incremental technology, with necessary customization according to the conditions of the firm. It will bring economies of scale and productivity level increases with reduction in per unit cost level. The third policy is to develop the culture of entrapreneur culture in the organization. It will make organization to be a place where different budding technologies will emerge.
Immigration has a direct and positive impact upon the productivity growth. With immigration policy, people with specific and key skills are allowed to give immigration to work in the country. These people with superior skill level, when work in the organization, will contribute in increase in the productivity.
So, higher level of immigration, will contribute into higher productivity level.

Marginal productivity : It refers to the increase in amount of output by adding one more unit of a factor of production, all other inputs are held constant. When a firm increases one unit of factor of production (while keeping other factors constant),the marginal productivity increases to a certain level. After reaching a certain level, the marginal productivity starts declining because when a firm keeps on increasing the amount of a particular factor of production, the marginal cost also increases.And after reaching a certain level, marginal cost exceeds marginal revenue,thus the marginal productivity declines.

Short run marginal cost is the change in the short run total cost for small change in output. Marginal cost increases and marginal productivity decreases as output decreases . As mentioned in earlier part ,After reaching a certain level, the marginal productivity starts declining because when a firm keeps on increasing the amount of a particular factor of production, the marginal cost also increases.And after reaching a certain level, marginal cost exceeds marginal revenue,thus the marginal productivity declines. Therefore, as output increases , marginal cost also increases to hire more units of input.