Multifactor productivity
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Multifactor Productivity (MFP) measures the changes in output per unit of combined inputs. Indexes of MFP are produced for the private business, private nonfarm business, and manufacturing sectors of the economy. MFP is also developed for 2-and 3-digit Standard Industrial Classification (SIC) manufacturing industries, the railroad transportation industry, the air transportation industry, and the utility and gas industry.
Whereas labor productivity measures the output per unit of labor input, multifactor productivity looks at a combination of production inputs (or factors): labor, materials, and capital. In theory, it’s a more comprehensive measure than labor productivity, but it’s also more difficult to calculate.
(1) Labor Productivity (output per hour)=Output/Labor Inputs
(2) Multifactor Productivity=Output/(KLEMS)
Multi-factor productivity is the same as total factor productivity, a certain type of Solow residual.
MFP = d(ln f)/dt = d(ln Y)/dt - sLd(ln L)/dt - sKd(ln K)/dt
where f is the global production function; Y is output; t is time; sL is the share of input costs attributable to labor expenses; sK is the share of input costs attributable to capital expenses; L is a dollar quantity of labor; K is a dollar quantity of capital.
