Productivity model

Productivity in economics is the ratio of what is produced to what is used in producing it. Productivity is the measure on production efficiency. A productivity model is a measurement method which is used in practice for measuring productivity. A productivity model must be able to compute Output / Input when there are many different outputs and inputs.

The principle of comparing productivity models is to identify the characteristics that are present in the models and to understand their differences. This task is alleviated by the fact that such characteristics can unmistakably be identified by their measurement formula. Based on the model comparison, it is possible to identify the models that are suited for measuring productivity. A criterion of this solution is the production theory and the production function. It is essential that the model is able to describe the production function.

The principle of model comparison becomes evident in the figure. There are two dimensions in the comparison. Horizontal model comparison refers to a comparison between business models. Vertical model comparison refers to a comparison between economic levels of activity or between the levels of business, industry and national economy.

At all three levels of economy, that is, that of business, industry and national economy, a uniform understanding prevails of the phenomenon of productivity and of how it should be modelled and measured. The comparison reveals some differences that can mainly be seen to result from differences in measuring accuracy. It has been possible to develop the productivity model of business so as to be more accurate than that of national economy for the simple reason that in business the measuring data are much more accurate. (Saari 2006b)

There are several different models available for measuring productivity. Comparing the models systematically has proved most problematic. In terms of pure mathematics it has not been possible to establish the different and similar characteristics of them so as to be able to understand each model as such and in relation to another model. This kind of comparison is possible using the productivity model which is a model with adjustable characteristics. An adjustable model can be set with the characteristics of the model under review after which both differences and similarities are identifiable.

A characteristic of the productivity measurement models that surpasses all the others is the ability to describe the production function. If the model can describe the production function, it is applicable to total productivity measurements. On the other hand, if it cannot describe the production function or if it can do so only partly, the model is not suitable for its task. The productivity models based on the production function form rather a coherent entity in which differences in models are fairly small. The differences play an insignificant role, and the solutions that are optional can be recommended for good reasons. Productivity measurement models can differ in characteristics from another in six ways.

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