Definition
Productivity is the ratio of output to the inputs used to create it. Labor productivity, the most common measure, expresses output per hour worked; total factor productivity captures output gains not explained by adding more labor or capital.
In economics, productivity is the single most important driver of long-run living standards. Working more hours raises output temporarily, but only producing more per hour can sustainably make a society richer.
Why it matters
How it works
Productivity rises when workers gain better tools, skills, knowledge, or organization. A farmer with a tractor produces far more than one with a hand plow; a coder with good libraries ships faster than one writing everything from scratch.
Total factor productivity captures the residual: the part of growth that comes from doing things smarter rather than simply using more resources. Because gains compound, even one or two percent extra per year transforms an economy over a generation.