Economic News Release

Multifactor Productivity Trends News Release


Internet address:http://www.bls.gov/mfp	 USDL 08-0617
Historical, technical		         For Release: 10:00 AM EDT
information:	(202) 691-5606	         Tuesday, May 6, 2008
Media contact:	(202) 691-5902	
		


PRELIMINARY MULTIFACTOR PRODUCTIVITY TRENDS, 2007

Private Business Sector and Private Nonfarm Business Sector

Multifactor productivity, defined as output per combined units of labor and 
capital inputs, grew at an annual rate of 0.7 percent in the private 
business sector and 0.6 percent in the private nonfarm business sector 
for 2007, the Bureau of Labor Statistics (BLS) and the U.S. Department 
of Labor reported today.
                            			2006-07
Private business sector	                          0.7
Private nonfarm business sector	                  0.6

The estimates of multifactor productivity in the private business and in 
the private nonfarm business sectors for 2007 both show a slight increase
from 2006.  The 2006-07 annual changes are summarized in tables A and B. 
Table B also presents data showing historical trends. 

Multifactor productivity is designed to measure the joint influences of 
economic growth on technological change, efficiency improvements, returns
to scale, reallocation of resources, and other factors, allowing for the 
effects of capital and labor.  Multifactor productivity, therefore, differs
from the labor productivity (output per hour worked) measures that are 
published quarterly by BLS since it includes information on capital services
and other data that are not available on a quarterly basis.   Additionally,
multifactor productivity measures for the private business and private 
nonfarm business sectors account for shifts in the composition of labor. 
Estimates of labor composition are not included in the quarterly labor 
productivity measures.

In private business and private nonfarm business, the change in multifactor 
productivity reflects the difference between the change in real gross domestic
product for the sector and the change in labor and capital inputs engaged in 
the production of this output.  The output measures for private business and 
private nonfarm business are similar to the indexes of output for business 
and nonfarm business used in the quarterly labor productivity measures 
differing only in that the output of government enterprises is omitted.

A change in multifactor productivity reflects the change in output that
cannot be accounted for by the change in combined inputs of labor and capital. 
In contrast, a change in labor productivity reflects the change in output
that cannot be accounted for by the change in hours of all persons engaged
in production.

Table A.  Productivity and related data, percent changes 2006-07

	                                 Private Business1   Private Nonfarm   
                                                                Business1                   
Productivity		
    Multifactor Productivity2	                 0.7	         0.6
    Output per hour of all persons	         1.8	         1.8
    Output per unit of capital services	        -0.8            -0.9
		 
Output	                                         2.3	         2.3
		 
Inputs		
    Labor input3	                         0.9	         1.0
        Hours	                                 0.4	         0.5
        Labor Composition4	                 0.5	         0.5
    Capital services	                         3.2	         3.2
    Combined units of labor and capital inputs5  1.6	         1.7
		
Analytic ratio
		
    Capital services per hour of all persons	 2.7	         2.7
               
1 Excludes government enterprises.
2 Output per unit of combined labor and capital inputs.
3 Index of hours at work by education and experience group, weighted by each 
  group’s share of labor compensation.
4 Ratio of labor input to hours.
5 Labor input index combined with capital services input index, weighted by 
labor’s and capital’s shares of nominal output.

Private business sector

Chart 1 shows the annual indexes of multifactor productivity, output per hour 
worked, and output per unit of capital services during the 1987-2007 period 
for the private business sector.  Over the last 20 years, capital services 
have grown more rapidly than hours in the private business sector, and the 
skills of workers -- as measured by their education and work experience -- 
also have risen over this period.  These shifts toward more capital intensive
production and toward workers with more human capital have supplemented labor
productivity growth, usually allowing output per hour to grow at a faster rate
than multifactor productivity.

Multifactor productivity rose 0.7 percent for the private business sector in 
2007 (see table A).   The multifactor productivity gain in 2007 reflected a
2.3 percent increase in output and a 1.6 percent increase in the combined 
inputs of capital and labor.

Capital services grew 3.2 percent.  Labor input posted an increase of 0.9 
percent, as both hours worked and labor composition rose.  The capital-labor 
ratio (capital services per hour of all persons) increased by 2.7 percent.

Labor input reflects the change in hours at work adjusted for the effects 
of changing labor composition.  The increase of labor input was due to an 
increase in hours at work of 0.4 percent and an increase of 0.5 percent 
in labor composition.  Labor productivity (output per hour worked) increased
1.8 percent.  Capital productivity (output per unit of capital services) fell
0.8 percent.  As shown in table B, the contribution of labor composition rose
0.3 percent from 2006 to 2007, while the contribution of capital intensity 
growth gained 0.9 percent over the same period. 

Private nonfarm business sector

Multifactor productivity rose 0.6 percent for the private nonfarm business 
sector in 2007 (see table A).   The multifactor productivity gain in 2007 
reflected a 2.3 percent increase in output and a 1.7 percent increase in the 
combined inputs of capital and labor.

Capital services grew 3.2 percent.  Labor input posted an increase of 1.0 
percent, as both hours worked and labor composition rose.  The capital-labor
ratio (capital services per hour of all persons) increased by 2.7 percent.

The increase of labor input was due to an increase of 0.5 percent in hours at
work and an increase of 0.5 percent in labor composition.  Labor productivity 
(output per hour worked) increased 1.8 percent.  Capital productivity 
(output per unit of capital services) fell 0.9 percent.  The contribution of 
labor composition rose 0.3 percent, while the contribution of capital 
intensity growth gained 0.9 percentage points from the previous period 
(see table B). 


Table B.  Compound average annual rates of growth in output per hour of all
persons and the contributions of capital intensity, labor composition, and
multifactor productivity, by major sector, 1987 to 2007
            
(percent per year) 

	              1987-07 1987-90 1990-95 1995-00 2000-07 2006-07
Private business1						
						
Output per hour 
of all persons	        2.2	1.6	1.5	2.7	2.7	1.8
						
Contribution of 
capital intensity2	0.8	0.6	0.6	1.1	0.9	0.9
						
Contribution of
labor composition3	0.4	0.4	0.4	0.3	0.4	0.3
						
Multifactor 
productivity4	        1.0	0.6	0.5	1.3	1.4	0.7

Private nonfarm 
business1						
						
Output per hour
of all persons	        2.2	1.5	1.6	2.5	2.6	1.8
						
Contribution of
capital intensity2	0.8	0.6	0.6	1.1	0.9	0.9
						
Contribution 
of labor composition3	0.4	0.4	0.4	0.3	0.4	0.3
						
Multifactor
productivity4	        1.0	0.5	0.5	1.1	1.3	0.6

1.Excludes government enterprises.
2.Growth rate in capital services per hour multiplied by capital's share 
of current dollar costs.
3.Growth rate of labor composition (the growth rate of labor input less 
the growth rate of the hours of all persons) multiplied by labor's share 
of current dollar costs.
4.Output per unit of combined labor and capital inputs.

Note: Multifactor productivity plus contribution of capital intensity and
labor composition may not sum to output per hour due to independent rounding.  

Comprehensive tables containing additional data not included in this news 
release are available at http://www.bls.gov/mfp/mprdload.htm or in print 
upon request. 



Summary of Methods

The methodology for preliminary estimates is discussed in “Preliminary
estimates of multifactor productivity growth” located at
http://www.bls.gov/opub/mlr/2005/06/art3abs.htm.  This release uses a 
methodology for preliminary estimates that uses data that are available 
shortly after the end of the calendar year.  The methodology is a simplified
version of the full methodology that BLS uses when more detailed information
is available.  Preliminary estimates for the private nonfarm business sector
are produced using the same methodology as that used for the production of 
estimates for the private business sector; the only difference is that the 
farm sector is excluded.  

Capital Input:   Capital input measures the services derived from the stock
of physical assets and software.  The assets included are computers, 
software, communications and other information processing equipment, other
fixed business equipment, structures, inventories, rental residences, and 
land.  Investments, depreciation, capital income, and rental prices are 
estimated for each of these eight aggregates.  Rental prices reflect the 
nominal rates of return and rates of economic depreciation and revaluation 
for the specific asset.  Rental prices are adjusted for the effects of taxes.
Data on investments in physical assets are obtained from BEA.  Capital input
measures constructed for the preliminary MFP measures are based on less detail
than those for full MFP measure. 

Labor Input:    Labor input is total hours worked multiplied by a labor 
composition index.  Hours paid of employees are largely obtained from BLS’s 
Current Employment Survey (CES).  These hours of employees are then converted
to an at-work basis by using information from the Employment Cost Index (ECI)
of the National Compensation Survey (NCS) and the Hours at Work Survey.  
Hours at work for non-production and supervisory workers are derived using 
data from the CPS, the CES, and the NCS.  The hours at work of proprietors, 
unpaid family workers, and farm employees are derived from the Current 
Population Survey. 

The labor composition index estimates the effect of shifts in the experience, 
education, and gender composition of the work force on the efficiency of labor
and multifactor productivity growth.  The preliminary MFP labor composition 
measure estimates the number of hours worked by each type of worker based on 
CPS data.  The estimate of the 2007 labor composition index assumed that 
relative wages across groups remained constant between 2006 and 2007.  
The sum over all groups of the hour’s growth rates multiplied by the labor  
cost shares gives the growth in adjusted labor input.  Subtracting this from 
the growth in total (un-weighted) hours yields the growth in labor 
composition.

Additional information concerning data sources and methods of measuring labor 
composition can be found in BLS Bulletin 2426 (December 1993), 
"Labor Composition and U.S. Productivity Growth, 1948-90." 
http://www.bls.gov/mfp/home.htm

Combined Inputs:  Labor and capital input are combined using a Tornqvist 
index.  Growth rates of labor and capital input are combined with weights that 
represent each component's share of total costs.  Total costs are defined as 
the value of output (Gross Product Originating) less a portion of taxes on 
production and imports.  Most taxes on production and imports, such as excise
taxes, are excluded from costs; however, property and motor vehicle taxes 
remain in total costs.  The index uses changing weights: The share in each 
year is averaged with the preceding year's share.

Output:  This release presents data for the U.S. private business sector.  
The private business sector, which accounted for approximately 77 percent 
of gross domestic product in 2000, includes all of gross domestic product 
except the output of general government, government enterprises, non-profit 
institutions, the rental value of owner-occupied real estate, and the output 
of paid employees of private households.  Multifactor productivity measures 
exclude government enterprises, while the BLS quarterly Productivity and Cost
series include them. 
 
Multifactor Productivity: The multifactor productivity indexes for private 
business and private nonfarm business are derived by dividing an output 
index by an index of labor input and capital services.  The output indexes 
are computed as chained superlative indexes (Fisher Ideal indexes) of 
components of real output.  BLS adjusts BEA output measures to remove the
output of government enterprises.

Last Modified Date: May 06, 2008
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