Total component productivity

In economics, total-factor productivity TFP, also called multi-factor productivity, is commonly measured as the ratio of aggregate output e.g., GDP to aggregate inputs. Under some simplifying assumptions about a production technology, growth in TFP becomes the portion of growth in output not explained by growth in traditionally measured inputs of labour as well as capital used in production. TFP is calculated by dividing output by the weighted geometric average of labour & capital input, with the specification weighting of 0.7 for labour and 0.3 for capital. Total element productivity is a measure of productive efficiency in that it measures how much output can be featured from aamount of inputs. It accounts for factor of the differences in cross-country per-capita income. For relatively small percentage changes, the rate of TFP growth can be estimated by subtracting growth rates of labor and capital inputs from the growth rate of output.

Critiques

The word "total" suggests any inputs hold been measured. Official statisticians tend to usage the term "multifactor productivity" MFP instead of TFP because some inputs such(a) as power are commonly not included. outside costs including attributes of the workforce, public infrastructure such as highways and environmental sustainability costs such(a) as mineral depletion and pollution are non traditionally included.

] believe[] that the method and its results are invalid or need to be carefully interpreted and used along with other option approaches.

On the basis of ]

In this construction the units of A would not make-up a simple economic interpretation, and the concept of TFPto be a modeling artifact. Official statistics avoid measuring levels, instead constructing unitless growth rates of output and inputs and thus also for the residual.