Productivity and the Cost of Production

Future inflationary trends are associated with two significant indicators. A cost is an indicator that defines unit labor costs of manufacturing each unit of output in the American economy. Productivity is an indicator that determines labor effectiveness in producing services and goods in the American economy. Costs and productivity regulate trends of inflation in wages, which often affect inflationary trends in other areas.

Productivity data affects both equity and bond markets in the same way. Since more effective workforce can result in significant corporate earnings, equity markets enjoy observing high productivity. The bond market, which enjoys moderate inflationary situation, also prefers to see the growth of productivity according to its role in keeping inflationary effects moderate. As the rise of productivity happens, inflation is stemmed since the economy can maintain higher increase than could be eventual with ineffectiveness in a labor market (“Productivity and Costs”, 2013).                                                                                                                

Production is the process of connecting units of consumption like human and natural resources in order to create output like services and goods that are capable to satisfy human necessities and demands. Productivity is a growth of output from each unit in the manufacturing process. There are several ways of reaching productivity, which include preparation of workers and introduction of equipment into the process of manufacture.                                                In general, the significance of productivity is essential because it increases output. High productivity results in lower cost per unit of output, and in turn, leads to higher levels of incomes for business. For example, a plant worker generates fifteen items in one hour, and, afterwards, he/she produces twenty five units in an hour, but after proper training. An employee’s efficiency has doubled, and business will benefit from a decline in unit cost as more units are being produced at the same cost of manufacture. Higher revenue for a company will mean more funds available for its expanse, community maintenance and new business ventures. Lower costs will also bring advantages to consumers in a form of lower prices (“Difference between Production and Productivity”, 2011). When government ministers and economists discuss productivity, they usually refer to the productivity of labor. Still, productivity also relates to other inputs. For example, a company could raise productivity by investing in new technology, which comprises the latest progress and diminishes the number of employees required to create the same amount of products. The primary target of government is to improve capital and labor productivity in the American economy in order to enhance the supply-side national potential (Riley, 2006). There is an inverse relationship between the productivity of factors and unit costs of production for business. When productivity is moderate, unit costs of delivering services and goods will be higher. If the business can reach higher results of effectiveness among its workforce, there can appear advantages from higher incomes and lower costs. Costs are measured as expenses faced by business when they produce services and goods for a market. Today, each business faces costs. It has to be compensated from selling services and goods at different prices if the business is created to make incomes from its activity (Riley, 2006). Soon, a company will have variable and fixed costs of products.

The costs related to creating or purchasing services and goods directly bring incomes for a company. There are indirect and direct costs. While indirect costs relate to costs that cannot be traced to output, such as overhead, direct costs are traceable to manufacturing and include costs for workers and materials. Fixed costs include advertising and marketing costs, insurance charges, business rates charged by local authorities and rent paid on buildings, the amortization in value of capital facilities according to their age, interest charges on borrowed capital, costs of staff wages for individuals employed on constant agreements, and the costs of buying new capital equipment.  Variable costs vary directly with production. If output increases, a company will face higher total variable costs. It is necessary to buy extra resources in order to reach an expansion of supply. Variable costs for the business include labor costs, the costs of raw materials and other components used in manufacturing. Productivity has a lot of advantages. At the national level, the growth of productivity increases living standards since more real income improves the human abilities to buy services and goods, improve education and contribute to environmental and social programs. Rise of productivity is quite important to the companies. More real profit means that a firm can meet its responsibilities to workers, customers, suppliers, and governments with regulation and taxes and still remain competitive in the market.                                                                                                              


  1. Difference between production and productivity. (2011). Wizznotes. Retrieved from http://wizznotes.com/pob/factors-of-production/difference-between-production-and productivity
  2. Productivity and costs. (2013). In Investopedia. Retrieved from http://www.investopedia.com/terms/p/productivity-and-costs.asp                          
  3. Riley, G. (2006). As market failure: Production and costs. Tutor2U. Retrieved from http://www.tutor2u.net/economics/revision-notes/as-marketfailure-productioncosts/