Economic Depreciation
Economic depreciation is the decline in an asset's current economic value from aging, deterioration, normal obsolescence, or normal accidental damage.
Productivity measures and asset-value concepts covering labor and total factor productivity, growth accounting, economic depreciation, and obsolescence risk.
Productivity measures compare real output with the inputs used to produce it. Labor Productivity focuses on output per hour, while Total Factor Productivity accounts for measured labor, capital, and potentially intermediate inputs.
Growth Accounting provides the bridge between those measures. It decomposes output or labor-productivity growth into measured input contributions and a residual productivity component.
The asset side of this branch addresses a different question. Economic Depreciation measures loss of economic value, including expected wear and normal obsolescence. Obsolescence Risk considers the possibility that technology, demand, regulation, or complementary systems shorten an asset’s useful economic life.
Keep measurement frameworks separate. Productivity growth is not the same as output growth, total factor productivity is not pure technology, and economic depreciation is not automatically equal to company-reported depreciation or replacement spending.
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Economic depreciation is the decline in an asset's current economic value from aging, deterioration, normal obsolescence, or normal accidental damage.
Growth accounting decomposes real output growth into contributions from measured production inputs and a residual total factor productivity component.
Labor productivity measures real output per hour worked and helps explain changes in economic efficiency, unit costs, wages, and productive capacity.
Obsolescence risk is the possibility that an asset, product, or process loses usefulness or value earlier than expected because its economic environment changes.
Total factor productivity measures output growth not accounted for by growth in measured labor, capital, and other production inputs.