Challenges in Measuring and Enhancing Service Productivity

Measuring and enhancing the productivity of services generally raises new challenges compared to a productivity measurement of manufacturing goods.

The reasons behind this are as follows:

1. Prices: One of the measurement problems concerns prices. Standard price data fails to capture the improvement in the quality of many outputs and thus leads to an understatement of real output.

2. Outputs in the Service Industry: Many of the outputs in service sector industries, however, are difficult to measure theoretically, such as the output in insurance, gambling, banking, options trading, etc.

It is hard to find equivalent output units in physical terms for most of the service sector outputs because of the facts such as its greater intangibility and that quality depends on the inputs provided by the user of the service.

3. Inputs in the Service Industry: Measurement of inputs in the service sector production also poses a problem for service sector productivity measurement.

The inputs include both intangible and tangible elements. For example, Labour input is generally measured in terms of hours worked by all persons engaged in production.

Such a measurement, however, is not accurate. Highly skilled workers contribute more to production than unskilled workers if both of them work for the same number of hours.

Outputs Used as Intermediate Inputs: Moreover, in the service sector, a high proportion of certain service outputs are used as intermediate inputs elsewhere, which makes the measurement even more difficult because the data on intermediate inputs are harder to obtain compared with the data on final outputs.

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