The Indices of Productivity

The productivity is expressed in terms of ratio between output and input, and it is measured in terms of the output per unit of input. There exists a well defined relationship between output (O) and the Input (I) in particular industry. In fact the output is a function of the input and so mathematically it can be expressed as O = f (I). The output is nothing but the value added in various types of inputs such as labor, capital etc.

As productivity measures the output per unit of input, theoretically there are as many indices of productivity as there are inputs. However for the purpose of simplicity they can broadly be classified as under:

1) Labor productivity
2) Capital productivity
3) Raw materials an fuel input productivity and
4) Total factory productivity index

Labor productivity: The labor productivity is obtained by dividing the gross value added by the average daily employment.

Labor Productivity = Gross value added / Average daily employment

The gross value added (i.e. numerator) is obtained by subtracting raw material inputs and fuel, electricity and lubricants consumed from the ex-factory value of the output. The depreciation is not deducted. The average daily employment (i.e. denominator) is obtained by the total attendance of the persons in al the shifts in all working days and dividing it by the number of days worked.

Capital productivity: It is obtained by dividing the gross value added by the fixed capital.

Capital Productivity = Gross value added / Fixed capital

In the denominator only the fixed capital investments are considered, such as land, buildings, plant, machinery etc. The working capital is excluded because inflationary business conditions the components of working capital viz., inventories receivables cash holdings etc. are more often determined by the supply and the market expectations rather than by the purely technological pipeline requirements of the working capital.

Raw materials and Fuel etc input productivity: It is obtained by dividing the gross ex-factory value of output by the combined value of inputs like raw materials fuel, electricity lubricants etc.

Raw materials and fuel input productivity =

Gross ex-factory value of output / Combined value of raw materials, fuel etc (inputs)

Total factory productivity index: It is a ratio between output and the sum of combined inputs of labor and capital.

Factory Productivity Index = Vt / W0 Lt + Ro Ct


Vt = Gross value added in year ‘t’

W0 = base year wage rate

R0 = Base year return on capital

Lt & Ct = Labor and Capital inputs in year ‘t’

The indices of productivity focus on the measurement of output an various types of inputs and thus they help in determining which particular output input comparisons are most relevant in evaluating the performance of various operations and units of concern to management and to interpret such findings with giving due regard to the influence of internally controllable and externally imposed factors.

All progressive units strive to attain the higher level of productivity. The productivity is a key factor which brings success to any establishment. The level of the productivity can be increased through the following means:

1) Application of the scientific management techniques
2) Devising better methods of operating he things with the help of time, motion and method studies
3) Implementing simplification and standardization in operations
4) Application of the principle of division of labor an specialization
5) Effect the control techniques, such as production control, quality control etc
6) Improvement in the plant layout and material handling facilities
7) Provision of better working conditions, plant and personnel services
8) Provision of the effective plant maintenance services
9) Proper selection a training of workers
10) Amicable industrial relations
11) Provision of fair wages and industrial relations
12) Philosophy of management.