Productivity Statistics are not Puzzles

Productivity Statistics are not Puzzles

In 2011, Singapore’s productivity growth was 1.3 per cent. In 2012, it was -2.6 per cent. What do these figures mean and what is their significance to your company?

Many of us often read about the productivity performance of our economy in the media, but do we really know what goes into that figure? Let’s see how this figure is derived. Only then can we understand it and put it to use.

Productivity measures the amount of products and services that are generated, by the use of various resources or inputs. There are certain key words here:

  • Products and services
  • Resources or inputs.

Products and Services

Products and services may be measured in a variety of ways. They can be expressed as dollar values (such as dollar of sales) or as physical quantities (such as number of clothes produced). The figure used in national accounting, i.e., the statistics published in media, refer to Gross Domestic Product (GDP), which is in dollar value.

GDP is a simple concept, particularly for managers who deal with their company accounts. It is simply the total wealth created by the companies in Singapore as a result of producing goods or providing services, for which they are paid by their clients.

Take Company A which manufactures radios. How does it contribute to GDP? Company A buys its raw materials such as radio components and casings from another company for $500,000. By using its resources, like labour and machinery, Company A is able to produce radios which are sold to its customers at $700,000. Hence, it generates an additional wealth amounting to $200,000 from the raw materials it bought from another company. This additional wealth is also called value added.

The GDP of the economy is simply the total of the value added of all the companies in Singapore.

Resources or Inputs

There are many types of resources. As mentioned above, the two major resources of a company are its labour and machinery. For the whole economy, its resources comprise the total number employed by its companies and the total amount of machinery they use.

A common resource used when measuring productivity is the number of employees. The productivity figure referred to in the media also uses the total number of persons employed in the economy.

Productivity

After aggregating the total value added of all the companies in Singapore to arrive at the GDP, as well as totalling all the persons employed, it is a straightforward step to derive the productivity figure.

Productivity is simply the amount of GDP generated relative to the number employed, namely:

Productivity = GDP / Number of persons employed

It is important to emphasise that this figure only shows GDP relative to the number employed, and does not mean that the GDP is created solely by the employees. The GDP is actually generated by all the resources of the economy, including machinery used.

The productivity formula given above is in dollar value and is more meaningful when compared with something, such as the previous year’s figure. Hence, the productivity figures quoted in the media actually refer to the growth rate over the corresponding period of the previous year. The productivity growth figure of -2.6 in 2012 would therefore mean that productivity for the year increased by this much over the productivity achieved in 2011. As the figure is negative, it means that we have a decrease in the productivity in 2012 as compared to 2011.

How Can I Use It?

You may think that this productivity figure is remote from your company’s situation as it refers to the whole economy, and therefore has no use at all to you.

However, the productivity of the economy has implications for you, both as an individual and as a member of your company. For an economy such as Singapore’s which has a limited scope for increasing manpower to boost its production and income, we depend very much on productivity improvements to accomplish that. As an individual living in Singapore, therefore, your livelihood relies very much on how productive the economy is.

Even if you belong to a progressive company, an ailing economy would eventually affect the performance of your company, and therefore you.

As a member of a company, you should look very closely at the productivity figure of the economy. Recall that the GDP, from which the national productivity figure is calculated, is obtained by aggregating the value added of all the companies in Singapore, including your company’s. The implication is that you can calculate a productivity figure for your company corresponding to the national productivity figure, but based on your company’s own value added. Although the national figure is an aggregate of so many types of companies from various industries, it still has implications for your company’s performance. If the productivity of your company has been continuously below the figure for the economy then this should be a matter of concern. It may be time for you to assess your operations or even to diversify into more productive lines of business.

However, if you want to have a more specific comparison for your company’s productivity figures, you may compare it with the averages for the industry to which your company belongs, instead of comparing it with the national figure. Such industry data are readily available.

Want to Know More About Productivity?

If you want to know more about productivity measurement and its significance and application to your own company, contact the Singapore Productivity Centre at 6745 5833 or email to customerservice@sgpc.sg for assistance.