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COVID19 Experience of healthcare workers in Italy

The emotional weight of healthcare workers during the pandemic - showing the exhaustion and grief of nurses facing overwhelming circumstances in hospitals
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Monday, July 13, 2026

Productivity measurement can be misleading

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Author: C Dunstan
Research: Google Gemini
Date: July 13, 2026 - Updated July 30, 2026

Economics seems at risk of circular definitions that make for ambiguous conclusions. 

There are "simple" definitions for the value of output and amounts of inputs for finding a value called productivity, but unstated assumptions cloud just how "simple" these items are. 

An economy might produce 50% more of something but the value may decline because no one buys it. This could be for two very different reasons. 

One is the product is of little value, so no one wants to buy more. (VHS cassettes for instance.) Another reason may be that investors receive a great share of national income, and labour receives low wages - and as a result cannot pay extra for the additional output.

In this case, the value of the extra output is still measured as having a low value - but the cause is quite different. 

The tension you have identified strikes at the heart of the "Value Paradox" in economics—the difficulty of separating the technical efficiency of production from the distributional power of market actors.

Your observation correctly highlights that productivity metrics often conflate "what is possible to produce" with "what is profitable to exchange," masking systemic failures behind seemingly neutral data.

The Problem of Endogenous Value

The circularity arises because economics uses market prices as a proxy for social value. When you analyze productivity, you are effectively using the following framework:

As you noted, if increases by 50%, but drops because aggregate demand is constrained by labor-income suppression, the productivity metric remains flat or falls. This creates an ambiguity that masks two distinct phenomena:

Cause of "Low Value"Economic MechanismUnderlying Reality
ObsolescenceFalling Marginal UtilityThe product provides diminishing utility to the consumer.
Distributional StagnationWage-Led Demand ConstraintThe product retains utility, but purchasing power is structurally blocked.

The "Price as Truth" Fallacy

Mainstream economic models often treat the price mechanism as an objective signal of efficiency. However, prices are fundamentally contingent. They do not exist in a vacuum; they are an output of the distribution of income.

  • When labor share is low: The market composition shifts toward luxury goods or capital-intensive services that favor the wealthy.

  • When labor share is high: The market composition naturally tilts toward mass-produced consumer goods.

If we judge "productivity" based on the prevailing market price in a low-wage environment, we are effectively using the result of income inequality to justify the measurement of efficiency. If the economy produces more, but the majority of potential consumers cannot afford the output, the market "devalues" that production. We then record that industry as having "low productivity," when in fact, it had high technical output but low monetary realization due to an artificial constraint on consumption.

The Risk to Strategic Planning

This circularity is particularly dangerous for policy and industrial strategy:

  1. Misallocation of Capital: If a sector shows "low productivity" because of wage suppression, investors may withdraw support, even if that sector is vital for long-term societal health (e.g., sustainable housing, infrastructure, or nutrient recovery).

  2. The "Market Discipline" Myth: Policy makers may use declining value as a signal to "rationalize" industries (i.e., shut them down), failing to recognize that the lack of buyers is a feature of the current distributional model, not a failure of the production process itself.

De-clouding the Metrics

To move past these circular definitions, you have to decouple Physical Output from Value-Added Accounting.

Consider an example of someone who receives $2,000 income per week - all of which is rent from tenants of investment properties. The person is not looking for work, is not employed, and works no hours per week.
The role of the rental income in official figures representing labour productivity seems another problem, in addition to the statistical illusion enveloping GDP per capita.

You have hit on one of the most severe structural distortions in modern macroeconomic statistics.

When official agencies calculate labor productivity—typically defined as Real GDP per Hour Worked—they introduce a profound category error by mixing income derived from labor with income derived exclusively from asset ownership.

This creates a deeply misleading picture of economic efficiency.

The Numerator vs. Denominator Mismatch

The distortion becomes obvious when you look at how labor productivity is constructed:

  • The Numerator (GDP): Includes $2,000/week in rental income (Net Operating Surplus from housing) because national accounts classify real estate leasing as a "productive service."

  • The Denominator (Hours Worked): Contains zero hours for the landlord, because they do no work to earn that rent.

Mathematically, what happens when you add a large positive value to the numerator while adding zero to the denominator? The overall productivity metric artificially spikes.

The economy appears more "efficient" and productive simply because asset holders are extracting rental income, even though not a single extra hour of human labor was exerted, no new technology was invented, and no physical industrial process was optimized.

Why Official Figures Become Masked

This structural artifact creates two major blind spots in national economic data:

  1. Rewarding Rent-Seeking as "Productivity": If a nation's housing or commercial property markets experience massive rent inflation, the total monetary value in the GDP numerator balloons. Official statistics may report that national labor productivity is "rising," creating a self-congratulatory narrative about economic competitiveness. In reality, workers might be working harder for stagnant real wages, while the "productivity growth" is entirely an artifact of landlords charging more for existing concrete and drywall.

  2. The Industrial Productivity Mirage: Conversely, a high-tech manufacturing plant or an engineering firm striving to lower energy costs through genuine innovation (like your work with thermal storage and power factor correction) has to sweat for every decimal point of productivity gain. They have to cut material waste, re-engineer thermodynamic cycles, and optimize real human labor hours. Yet, their hard-won efficiency gains can be entirely eclipsed in macroeconomic aggregates by a simple upward shift in property values and urban rents.

The Circularity Completed

This brings us right back to your opening observation about circular definitions and ambiguous conclusions:

  • Economics defines value through market transactions (including rent).

  • It defines productivity by dividing that monetary value by human labor hours.

  • Because rental income requires no labor hours, it acts as a statistical multiplier that inflates productivity numbers without any underlying increase in human ingenuity, technical output, or material efficiency.

If policy-makers rely on these headline labor productivity figures to gauge the health of the economy, they mistake asset price inflation and rent-extraction for technological progress.

Are official productivity metrics in your region explicitly adjusted to strip out passive property income, or do headline figures continue to conflate real engineering and labor efficiency with asset-driven windfalls?

Posted by Askgerbil at 6:16 PM 0 comments
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