What is productivity? And, why does it matter?

What is productivity? And, why does it matter? By: Robert F. Abbott When Phil hires a new helper for one of his construction projects, he first watches to see whether or not the newcomer has the right attitudes and habits to keep him as an employee. And, if the newcomer meets expectations,' Phil introduces him to his philosophy about work by telling him the woodcutters story. Two woodcutters who are working together for the first time, set off in the morning to cut down trees. One woodcutter works very hard, and aside from a couple of breaks, works steadily all day. The other woodcutter, though, seems to take many more breaks, at least one every hour. So the first woodcutter expects he'll have cut down many more trees by the end of the day. But, when they quit for the day, the first woodcutter finds, to his surprise, that the second woodcutter has done more, despite taking all those breaks. And, in his frustration, the first woodcutter wonders out loud how the second woodcutter did it. The second woodcutter couldn't help but hear the first woodcutter's question, and replies, "Yes, I take many more breaks, but every time I take one, I sharpen my axe." Phil uses this story of the woodcutters to explain his ideas about productivity, and he doesn't relate it to the productivity which economists refer to in their statistics. Phil thinks of productivity in a very immediate way: how many nails you can drive in one hour, for example. The economists are talking about the same thing, only they're talking about it as the sum of many millions of businesses and organizations, so they're talking about productivity in an abstract way. Whatever the case, productivity simply refers to the amount of value you can get from labor, land, or capital (invested money). As we'll see in the next section, Phil's income goes up when he (and his helper