The difference between the following terms will help in clarifying the concept of productivity. However, the consideration of the concept of productivity with reference to the labor only suffers from some limitations
Productivity and Production: The concept of productivity and that of production are totally different. Production refers to the absolute output, while productivity is a relative term wherein output is always expressed in terms of input. The production may rise without the corresponding rise in the productivity and vice versa. If inputs remain the same and the production of output increases, there is a rise in the level of productivity. If the output rises in greater proportion than the increase in the input, there is till a proportionate rise in the level of the productivity. But of the output rises at a lower rate than the input, there will be a fall in the productivity even though there is an increase in production on the whole.
Productivity thus refers to efficient utilization of resources. The improvement in the level of productivity refers to the efficient utilization of various types of inputs contributing to the output.
Productivity and Cost: The concept of productivity and cost has gained great popularity during and after the Second World War. Both are so closely related they are sometimes treated as the Siamese twins. They are virtually inseparable and as a result if one of them is being referred to, the inference of the other, by implication is unavoidable. Productivity in its ultimate analysis does not simply mean higher production divorced from cost. We always talk in terms of: How to increase productivity so as to reduce costs, or how to reduce costs so as to increase productivity.
There exists misconception about the productivity in the minds of the labor class. The workers mean that greater productivity means bigger work loads, greater efforts and increase in the profit of the owners. They also mean that it results into displacement of labor. However, these are not the correct observations. In fact, productivity integrates the objectives of the owners and workers. Greater productivity increases production through efficient utilization of inputs rather than the exploitation of workers. In principle, it emphasizes that due share in the increased production and profits must go to the workers who are the key contributions to the productivity. Productivity strives to minimize the human hazards and human efforts with a view to utilizing them to those areas where they can contribute maximum to the output. At times, the techniques employed to increase the productivity may result into replacement of labor. However, the retrenchment of the workers can be minimized through effective manpower planning.
Importance of productivity:
The productivity consciousness has increased in all types of activities because it avails the following advantages:
1) It emphasizes the efficient utilization of all the factors of production which are scarce universally. It attempts to eliminate the wastage of very kind.
2) It facilitates the comparison of the performance of the firm with that of its competitors or related firms, both in terms of aggregate results and in terms of major components of performance.
3) It enables the management to control the performance of the firm by identifying the comparative benefits rising out of the use of different inputs, or varying proportions of the same inputs, currently and over longer periods, as the basis for considering alternative adjustments.
4) It also provides a reliable data for certain managerial decisions such as collective bargaining regarding the wages with the trade union, effective presentation before the Government against the imposition of prospective restrictions etc.
5) At national level also the concept of productivity is useful as under:
The statistical data about the productivity assist, the Government in framing certain economic policies regarding business community, trade unions, employment, hours of work, wages, price control, protection to industries, technological developments, taxation and fiscal policies, allocation of scarce natural resources, extension of labor welfare and social extension schemes etc.