Why is productivity important for economic growth

An economy without productivity will be like working without purpose.

Productivity can teach you, make you win or lose. Without productivity, you will achieve nothing but lose name, money, skill, trust, global position, and failure to your economic development.

Productivity is one of the most important determinants of our living standards. It shows how an economy uses the available resources measuring and relating the inputs in correspondence to the output.

It is measured by efficiency and by calculating the ratio of the production to one or many inputs. It also triggers all to strive for success.

Tip: 10 things successful people do every day to stay productive

Well, here we bring to you important points that ill lead to why productivity is important for the economic growth and their related beneficiaries.

1. Competition with other sectors of the economy

Growth in productivity can be substantial at the economic level as it allows the industries and businesses to compete with other sectors of the economy for the resources like raw material, machine, labor and required capital.

Internal competitiveness will lead to great quality output/resources used for production which will not only increase competition in the local market but at national and international level.

2. Input Output link

Some economic sectors have low productivity growth but are vital to the aggregate development of the economy.

For example: health, service and education sectors. The output or the end products across sectors will be inversely proportionate to another related sector as it will increase the demand for skilled manpower and educated workforce.

Even the businesses who have low productivity and produce goods which are used as inputs in the form of raw material are also vital in contributing to economic growth as a whole; whereby Government should focus not only on sectors exhibiting greater productivity growth but also towards ancillary sectors.

3. Consumers

Looking at the micro level growth, consumers have improvements in their living standards and lifestyle due to increased productivity.

Greater the efficiency lesser will be the input requirement of labor, land or capital needed to generate goods. This will reduce the price, increase competitiveness, product quality will be enhanced and maximum consumer consumption leading to economic growth at large.

This will also reduce the working hours within the economy not compromising with the rise in the economy.

Cost reduction will lead to increase in demand, more output and rise in employment opportunities.

4. Businesses

Business achieves higher productivity after following the processes and can also gain out of greater output from same or a few inputs.

By lowering the costs, one can achieve greater efficiency along with better margins. This enables higher employee compensation, improvement in capital and increased competitive capacity.

5. Government bodies

Increased economic growth achieved through increased productivity will also involve significant tax payments.

These taxes collected can be utilized in social welfare, infrastructure developments and other necessary developments for the country.

Societies characterized by higher productivity will have logical and smart choices of saving and investment against current consumption level, dynamism and competitiveness in market, openness to national and international trade, greater awareness of the external and internal influences in the economy, doing smart application of new technologies, products and processes increasing demand for highly skilled and innovative people.

Tip: 10 Common Habits of Highly Successful People

It is also pertinent to mention that a successful society will inevitably try to maintain more influx of the capital, ideas, and people involved.

Productivity is measured at every level of the economy, both at the total economic level and at individual levels.

Often there is a confusion of productivity with production; productivity is said to be a measure of how efficient production method is irrespective of the quantity or quality of output of the product.

It is actually a relative concept which can be determined from per unit inputs.

Productivity will take a leap when inputs used in production are utilized at the optimal level to achieve higher level output.

Productivity may be used to calculate the rate of growth of the economy, but it is incorrect, to analyze both labor and multifactor productivity, which is used to estimate the level of productivity at your workplace.

Changes in the rate of growth of productivity depend on the business cycle or the prevailing market conditions.


In order to grow stronger, productivity is the key to success. It is a national as well as a global indicator.

At the national level, it holds the economic capability of tackling both its physical and human resources to generate greater outputs as revenue or income.

Productivity growth refers to the increase in the value of output for given set of input over a specified period.

Recommended Read: 10 Effective Strategies for Boosting Productivity at Workplace

By |2018-12-28T12:48:27+00:00June 22nd, 2018|Blog|2 Comments

About the Author:

Danish Wadhwa
Danish Wadhwa is a strategic thinker and an IT Pro, with more than 6 years of expertise in the digital marketing industry. He is more than a results-driven individual, who is well-versed in providing high-end technical support, optimizing sales and automating tools to stimulate productivity for businesses.


  1. VIKASH KUMAR June 23, 2018 at 3:48 pm - Reply

    Hey Danish

    Yeah Right, because then people would work less, have less money, spend less, then less products would be made, and that isn’t growth!

    • Danish Wadhwa
      Danish Wadhwa June 24, 2018 at 3:04 pm - Reply

      Hello Vikash, Yes you caught it right. Very few who understand the value of Productivity. After reading lot of books, I came to know that most successful people tend to be more productive than others.

      Danish W.

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