Is labor productivity a part of a multi-factor productivity measurement?

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M.P. Ossa eNotes educator| Certified Educator

In business, labor statistics, as well as the changes between outputs and inputs, are measured using the Multi-factor productivity formula (MFP). This formula, as it name implies, combines different variables that may affect production such as the budget needed to run the business (capital), what is needed to run and re-supply it (materials), and who is performing the tasks to produce (labor). This being said, labor productivity is one of the three factors measured by the productivity formula.

However, keep in mind that labor productivity itself also has its own measuring formula to determine output and input. In its formula, the total output of productivity is divided by labor input. This is how you can quantify whether you are over-hiring, or under-hiring. It also helps to determine wages and schedules for optimal production.