Question

Reasons why productivity is important are numerous. Although productivity increases can have a negative impact in an economic situation where the productivity increases at a faster rate than the growth of the economy, generally, productivity increases typically have a positive impact. Simply, productivity is an important competitive issue. It can be important and reviewed on three levels: national, organizational, and personal.

Answer 1

Productivity is important to the organization as well as to the economy. It helps the firms improve efficiency and reduce costs. As a result, firms are able to gain higher price advantage and increase the profit margin. But, it does not mean the productivity will be necessarily used to maximize the production beyond the level of economic growth. Production at the firm level, will only take place up to the level of marginal revenue = marginal cost. Further, it is the demand that will makes the firms to produce and at higher efficiency, output will be produced at a lower cost.

Apart from measuring productivity, at national, organizational and personal level, productivity can also be reviewed at factor level as labor productivity and multi-factor productivity. It will help to evaluate different process and select the best process. Further, increase in productivity at worker level, increases marginal revenue product per worker and the wages given to the workers, also increase. So, productivity helps workers as well, other than the firm and economy.