productivity, in economics, the output of any aspect of production per unit of input. It is a measure of the output of a worker, machine, or an entire national economy in the creation of goods and services to produce wealth. Output can be measured in output per acre for land, per hour for labor, or as a yearly percentage for capital. A high national productivity typically indicates efficient production of goods and services and a competitive economy, but productivity growth can occur during periods of recession and increased unemployment as businesses cut jobs and seek to become more efficient. Productivity in the United States rose an average of 2.5% each year in the 1950s and 60s, then only 1% per year during the 1970s and 80s. Low industrial productivity (especially in the automotive industry) in the United States was a major concern in the 1970s and 80s, as Japanese innovations in assembly lines and other manufacturing operations led to greater productivity gains in that country; Japan's resulting competitive edge led to increased exports to the United States and was a factor in the downturn in U.S. business in those decades. During the 1990s annual productivity increases ranged from 3.2% to 4.2%, but during much of the decade these increases were matched or surpassed by those in many European countries and Japan.

In economics, a measure of productive efficiency calculated as the ratio of what is produced to what is required to produce it. Any of the traditional factors of production—land, labour, or capital—can be used as the denominator of the ratio, though productivity calculations are actually seldom made for land or capital since their capacity is difficult to measure. Labour is in most cases easily quantified—for example, by counting workers engaged on a particular product. In industrialized nations, the effects of increasing productivity are most apparent in the use of labour. Productivity can be seen not only as a measure of efficiency but also as an indicator of economic development. Productivity increases as a primitive extractive economy develops into a technologically sophisticated one. The pattern of increase typically exhibits long-term stability interrupted by sudden leaps that represent major technological advances. Productivity in Europe and the U.S. made great strides following the development of such technologies as steam power, the railroad, and the gasoline motor. Later in the 20th century, advances in productivity stemmed from a number of innovations, including assembly lines and automation, computer-integrated manufacturing, database management systems, just-in-time manufacturing, and just-in-time inventory management. Increases in productivity have tended to lead to long-term increases in real wages.

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In economics, the theory that firms will pay a productive agent only what he or she adds to the financial earnings of the firm. Developed by writers such as John Bates Clark and Philip Henry Wicksteed at the end of the 19th century, marginal productivity theory holds that it is unprofitable to buy, for example, a man-hour of labour if it costs more than it contributes to its buyer's income. The amount in excess of costs that a productive input yields is the value of its marginal product; the theory posits that every type of input should be paid the value of its marginal product.

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