Multifactor Productivity

Frequently Asked Questions

On this Page:

  1. What is the difference between labor productivity and multifactor productivity?
  2. Why isn't multifactor productivity available quarterly?
  3. What is the most commonly used multifactor productivity measure?
  4. Why does the output per hour series in the major sector multifactor productivity dataset differ from the output per hour series in the quarterly labor productivity dataset?
  5. How is capital input derived for use in the multifactor productivity measures?
  6. What is a rental price?
  7. How do the multifactor productivity measures for private business and private nonfarm business differ from the measures for the manufacturing sector and manufacturing industries?
  8. How is MFP defined?
  9. Why is productivity measurement important?
  10. Are sector or industry productivity measures available for separate regions, states, and cities in the United States?

What is the difference between labor productivity and multifactor productivity?

Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output. Multifactor productivity relates output to a combination of inputs used in the production of that output, such as labor and capital or capital, labor, energy, materials, and purchased business services (KLEMS). Capital includes equipment, structures, inventories, and land.

Why isn't multifactor productivity available quarterly?

Some source data needed to construct such measures are not available quarterly.

What is the most commonly used multifactor productivity measure?

The most commonly used multifactor productivity measure is for the private business sector of the economy. This sector essentially measures the for-profit sector of the economy and it is the broadest sector for which multifactor productivity measures are available.

Why does the output per hour series in the major sector multifactor productivity dataset differ from the output per hour series in the quarterly labor productivity dataset?

Because satisfactory capital measures are unavailable for government enterprises, government enterprises are excluded when multifactor productivity is calculated. The labor productivity measures include government enterprises.

How is capital input derived for use in the multifactor productivity measures?

Capital input is measured as “capital services” — the flow of services from the physical stock of capital. The stock of capital is measured using a “perpetual inventory method” as the sum of past investments adjusted for depreciation and retirements. Rental prices for each asset are estimated to value the stock of capital.

What is a rental price?

The rental price is the amount of rent per year a dollar's worth of capital stock earns. Since the owner and user of capital goods are often the same, the rental price of capital services must be implicitly estimated.

How do the multifactor productivity measures for private business and private nonfarm business differ from the measures for the manufacturing sector and manufacturing industries?

The multifactor productivity measures for private business and private nonfarm business use a value-added concept of output. Value added measures the contributions of capital and labor in production. In private business and private nonfarm business, value added output is compared to only two inputs, capital and labor. In measuring labor input for these major sectors, the effects of changing labor composition are estimated.

For the manufacturing sector and manufacturing industries, output is “sectoral output,” which measures the total value of production including purchased intermediate inputs, but excludes shipments between establishments in the same industry/sector. Multifactor productivity is measured by comparing sectoral output to three classes of inputs: labor, capital, and purchased intermediates (including energy, materials, and business services from outside of manufacturing). For the manufacturing sector and manufacturing industries, labor input is a direct aggregate of hours, and changes in labor composition are not measured.

How is MFP defined?

MFP measures reflect output per unit of a set of combined inputs. A change in MFP reflects the change in output that cannot be accounted for by the change in combined inputs. As a result, MFP measures reflect the joint effects of many factors including research and development (R&D), new technologies, economies of scale, managerial skill, and changes in the organization of production.

Why is productivity measurement important?

Advances in productivity, that is the ability to produce more with the same or less input, are a significant source of increased potential national income. In the long run, increases in real hourly earnings are tied to productivity gains. The U.S. economy has been able to produce more goods and services over time, not by requiring a proportional increase of labor time, but by making production more efficient.

Are sector or industry productivity measures available for separate regions, states, and cities in the United States?

No. Our sector or industry productivity measures are only available at the national level. Data availability at anything less than the national level is not adequate for developing regional measures.

Last Modified Date: July 30, 2008

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