Sometimes it is easy to misunderstand the importance of productivity. National figures, such as gross domestic product (GDP) are often reported in the media. They may be easy to ignore, but make no mistake; they are key economic indicators—barometers, if you will, that affect everybody. Productivity is defined by the Organisation for Economic Co-operation and Development (OECD) as “how efficiently production inputs, such as labour and capital, are being used in an economy to produce a given level of output”[1] in goods and services. One way to look at this is by comparing a year’s wages for different jobs. This is not a commentary as to which job has more worth – all of these are needed in our economy -- but in economic terms which position makes more money and thus is calculated as having a higher “productivity” ranking, an agricultural day laborer, a retail sales person or a computer programmer? The computer programmer of course. Computer programmers are highly skilled (thus measured as relatively higher in productivity by dollars in hourly outputs) but that job can be outsourced to lessor paid but still highly skilled workers in another country. In fact, it would be inefficient in the economic sense for a company not to do so. But where does that leave us?

When U.S. companies out-source or off-shore more highly paid positions, many times what is left are the relatively lower paid positions. When that cycle is repeated on a wide scale across the economy, there is less money circulated and thus we find a relatively lower productivity level. This is a highly simplified example of course, and many of those service jobs move into design and innovation areas that are difficult to outsource. Technology advances have always caused disruption, and it is no different today. It is also technology that provides solutions – consider the cell phone. It disrupted the old landline industry but created a whole new set of industries and careers – yes, higher-paid service careers as well.

Productivity levels are also important at the industry and company level (not just the national level). Productivity gains can offset inflationary pressures related to wage increases. Productivity increases result in lower cost per unit. Those savings not only generate higher profits; they also help pay for wage increases. For companies, a higher productivity relative to their competitors gives them a competitive advantage in the marketplace. With a higher productivity level, they can afford to undercut competitor’s prices to gain market share or charge the same prices but realize greater profits. For an industry, higher relative productivity means it is less likely to be supplanted by foreign competition. In light of this context, answer the following questions:

• Why is high productivity important for a nation?
• Why might service jobs have lower productivity than manufacturing jobs?
• How can a company gain a competitive advantage by having higher productivity than its competitors have?
• What measures of productivity do you have in your current position? Is low productivity an issue at your workplace?