The Definition and Measurement of Productivity
Melbourne Institute Working Paper No. 09/98
Date: June 1998
This paper introduces the various methods that have been used to analyse productivity. Productivity is defined as the ratio of output to input for a specific production situation. Productivity changes can be caused by either movements in the 'best practice' production technology, or a changes in the level of efficiency. The paper discusses the various problems encountered in measuring productivity when there are multiple outputs and inputs. Also, the problems concerning the measurement of inputs and outputs are discussed. Methods that analyse the level of inefficiency within a sample of firms are reviewed. These include data envelopment analysis, stochastic production functions and panel data methods. Lastly, a few Australian productivity studies are reviewed to illustrate the empirical use of the various definitions and techniques.