Economic News Release

Multifactor Productivity Trends News Release



Internet address:http://www.bls.gov/mfp	 USDL 09-0480
Historical, technical		         For Release: 10:00 AM EDT
information:	(202) 691-5606	         Wednesday, May 6, 2009
Media contact:	(202) 691-5902	
		


PRELIMINARY MULTIFACTOR PRODUCTIVITY TRENDS, 2008

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 1.2 percent in the private 
business sector and 1.1 percent in the private nonfarm business sector 
for 2008, the Bureau of Labor Statistics (BLS) and the U.S. Department of
Labor reported today.
                            			2007-08
Private business sector	                          1.2
Private nonfarm business sector	                  1.1

The estimates of multifactor productivity in the private business and in 
the private nonfarm business sectors for 2008 both show the largest annual
rates of growth since 2005.  The 2007-08 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 
technological change, efficiency improvements, returns to scale, reallocation
of resources, and other factors on economic growth while 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 a single factor--the change in hours of all
persons engaged in production.

Table A.  Productivity and related data, percent changes 2007-08


					   Private Business1   Private Nonfarm 
                                                                  Business1
Productivity		
    Multifactor productivity2	                  1.2	              1.1
    Output per hour of all persons	          2.7	              2.8
    Output per unit of capital services	         -2.1	             -2.0
		
Output	                                          0.8	              0.8
		
Inputs		
    Labor input3	                         -1.9	             -1.8
        Hours	                                 -1.9	             -2.0
        Labor composition4	                 -0.1	              0.1
    Capital services	                          2.9	              3.0
    Combined units of labor and capital inputs5	 -0.3	             -0.3
		
Analytic ratio:		
    Capital services per hour of all persons	  4.9	              5.0

1 Excludes government enterprises.
2 Output per unit of combined labor and capital inputs.
3 Index of hours at work; hours at work by education and experience group are
  weighted by each group’s share of labor compensation.
4 Ratio of labor input to hours.
5 Labor input index combined with capital service 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 1987-2008 period 
for the private business sector.  Over the last 21 years, capital services
have grown more rapidly than hours in private business, and the skills of 
workers -- as measured by their age and education, which implicitly measure 
their 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 1.2 percent for the private business sector in
2008 (see table A).   The multifactor productivity gain in 2008 reflected a 
0.8-percent increase in output and a 0.3-percent decrease in the combined 
inputs of capital and labor.

Capital services grew 2.9 percent.  Labor input posted a decrease of 1.9 
percent, as both hours worked and labor composition fell.  Labor input 
reflects the change in hours at work adjusted for the effects of changing 
labor composition.  The decrease of labor input was due mostly to a 
decrease in hours at work of 1.9 percent and a decrease in labor composition
of 0.1 percent.  The capital-labor ratio 
(capital services per hour of all persons) increased by 4.9 percent.

Labor productivity (output per hour worked) increased 2.7 percent.  Capital
productivity (output per unit of capital services) fell 2.1 percent.  As
shown in table B, the contribution of labor composition was unchanged from 
2007 to 2008, while the contribution of capital intensity growth gained
1.6 percent over the same period. 

Historical trends in labor productivity growth can be viewed as the sum of
three components: multifactor productivity growth, the contribution of 
increased capital intensity, and the contribution of shifts in labor 
composition.  Chart 2 clearly shows the major changes in the relative 
contributions of multifactor productivity and of capital intensity in the 
latter half of the 1990s.  These contributions have continued to be relatively 
high for the 2000-2007 period and for 2007-2008.

Private nonfarm business sector

Multifactor productivity rose 1.1 percent for the private nonfarm business 
sector in 2008 (see table A).   The multifactor productivity gain in 2008 
reflected a 0.8-percent increase in output and a 0.3-percent decrease in 
the combined inputs of capital and labor.

Capital services grew 3.0 percent.  Labor input posted a decrease of 1.8 
percent, as hours worked declined and labor composition rose slightly.  The 
decrease of labor input was due to a decrease of 2.0 percent in hours at work
and an increase of 0.1 percent in labor composition.  The capital-labor ratio 
(capital services per hour of all persons) increased by 5.0 percent.

Labor productivity (output per hour worked) increased 2.8 percent.  Capital 
productivity (output per unit of capital services) fell 2.0 percent.  The
contribution of labor composition rose 0.1 percent, while the contribution 
of capital intensity growth gained 1.6 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, selected periods, 1987-2008
            
(Percent per year) 

	           1987-2008 1987-1990 1990-1995 1995-2000 2000-2007 2007-2008
Private business1						
						
Output per hour 
of all persons	        2.2	 1.6	  1.5	    2.7	      2.6	2.7
						
Contribution of 
capital intensity2	0.9	 0.6	  0.6	    1.2	      0.9	1.6
						
Contribution of
labor composition3	0.3	 0.4	  0.5	    0.2       0.2	0.0
						
Multifactor 
productivity4           1.1	 0.6	  0.5	    1.3	      1.5	1.2

Private nonfarm
business1						
						
Output per hour
of all persons	        2.2	 1.5	  1.6	    2.5	      2.5	2.8
						
Contribution of
capital intensity2	0.9	 0.6	  0.6	    1.2	      0.9	1.6
						
Contribution of
labor composition3	0.3	 0.4	  0.5	    0.2	      0.2	0.1
						
Multifactor 
productivity4	        1.0	 0.5	  0.5	    1.1	      1.4	1.1

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. 




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

Notes

While capital services by major sector are estimated for 2008, these 
preliminary estimates do not include an update of capital services by asset 
type.  Measures of capital services through 2007 can be found in tables 5
and 6 of “Multifactor Productivity Trends, 2007” located at 
http://www.bls.gov/news.release/archives/prod3_03252009.pdf. 

The data in this press release reflect updated methodology that was 
introduced in the March 25th, 2009 press release, 
“Multifactor Productivity Trends, 2007” located at
http://www.bls.gov/news.release/archives/prod3_03252009.pdf. 
These data reflect updated and revised data sources, improved 
measures of rates of return on capital stock, and, to a larger extent, 
improved methodology in labor composition, described in “Changes in the
Composition of Labor for BLS Multifactor Productivity Measures, 2007”,
available at http://www.bls.gov/mfp/mprlabor.pdf.



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 the 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 the Bureau of Economic
Analysis (BEA).  Capital input measures constructed for the preliminary MFP 
measures are based on less detail than those for the full MFP measures. 

Labor Input:    Labor input in private business and private nonfarm business 
is obtained by chained superlative (Tornqvist) aggregation of the hours at 
work by all persons, classified by age, education, and gender with weights 
determined by their shares of labor compensation.  Hours paid of employees 
are largely obtained from the Current Employment Statistics program (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 nonproduction 
and supervisory workers are derived using data from the Current Population 
Survey (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.  Hours at work data reflect Productivity and Costs data as of the
March 5, 2009 news release.  Therefore it reflects the benchmark revisions
to the CES and other revisions to hours released on February 6, 2009.  The 
preliminary estimate of the 2008 labor composition index assumes that relative
wages across groups remained constant between 2007 and 2008.  The growth rate
of labor composition is defined as the difference between the growth rate of 
weighted labor input and the growth rate of the hours of all persons. 
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." 

Combined Inputs:  Labor and capital input are combined using Tornqvist 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 private business and private 
nonfarm business sectors.  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.  
Additionally, the private nonfarm business sector excludes farms from the
private business sector, but includes agricultural services.  Multifactor 
measures exclude government enterprises, while the BLS quarterly Productivity 
and Cost series include them.
 
Multifactor Productivity:  Multifactor productivity measures describe the 
relationship between output in real terms and the inputs involved in its 
production.  They do not measure the specific contributions of labor,
capital, or any other factor of production.  Rather, multifactor productivity
is designed to measure the joint influences of output, capital, and labor on
economic growth of technological change, efficiency improvements, returns to
scale, reallocation of resources due to shifts in factor inputs across 
industries, and other factors.  
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.


Table 1. Private business sector: Indexes of productivity and related 
measures, 1987-2008

Indexes 2000=100

       Output                                          Combined              
       per     Output  Multi-                          units of              
       hour    per     factor                  Capital capital Capital       
       of all  unit of Product-        Labor   Serv-   and     per hour of   
Year   persons capital ivity2  Output3 Input4  ices5   labor6  all persons   

1987    77.3    108.1   89.9    62.4    75.5    57.8    69.5    71.5
1988    78.5    108.7   90.6    65.2    78.1    60.0    71.9    72.2
1989    79.3    108.5   90.8    67.6    80.6    62.3    74.4    73.1

1990    81.0    106.8   91.4    68.6    80.5    64.3    75.1    75.9
1991    82.4    103.2   90.7    68.1    79.7    66.0    75.1    79.9
1992    86.0    105.0   93.1    70.9    80.5    67.5    76.2    81.8
1993    86.4    105.2   93.2    73.2    83.0    69.6    78.6    82.1
1994    87.2    106.6   93.9    76.8    86.7    72.1    81.9    81.8

1995    87.4    105.3   93.7    79.2    89.0    75.2    84.5    83.1
1996    90.0    105.3   95.3    82.8    90.8    78.7    86.9    85.5
1997    91.7    105.3   96.2    87.2    94.4    82.9    90.7    87.1
1998    94.3    103.8   97.4    91.5    96.5    88.2    93.9    90.9
1999    97.2    102.3   98.8    96.2    98.8    94.1    97.4    95.0

2000   100.0    100.0  100.0   100.0   100.0   100.0   100.0   100.0
2001   102.8     96.0  100.4   100.5    98.2   104.6   100.0   107.0
2002   107.1     94.7  102.5   102.0    96.2   107.7    99.5   113.1
2003   111.2     95.5  105.4   105.2    95.8   110.2    99.9   116.5
2004   114.5     97.2  108.2   109.7    96.9   112.9   101.4   117.8

2005   116.6     98.1  109.7   113.6    98.8   115.8   103.6   118.9
2006   117.6     98.4  110.3   117.1   101.2   119.1   106.2   119.6
2007   119.5     97.7  110.7   119.5   102.3   122.3   108.0   122.3
2008   122.7	 95.6  112.0   120.4   100.3   125.9   107.6   128.3

See footnotes following table 4.
Source: Bureau of Labor Statistics



Table 2. Private nonfarm business sector: Indexes of productivity and related 
measures, 1987-2008

Indexes 2000=100

       Output                                          Combined              
       per     Output  Multi-                          units of              
       hour    per     factor                  Capital capital Capital       
       of all  unit of Product-        Labor   Serv-   and     per hour of   
Year   persons capital ivity2  Output3 Input4  ices5   labor6  all persons   

1987    78.0    110.1   90.7    62.4    74.9    56.7    68.8    70.8
1988    79.3    111.0   91.7    65.3    77.5    58.8    71.3    71.4
1989    79.9    110.6   91.7    67.6    80.1    61.2    73.8    72.3

1990    81.4    108.6   92.0    68.6    80.2    63.2    74.6    75.0
1991    82.9    104.7   91.3    68.1    79.2    65.0    74.6    79.1
1992    86.3    106.2   93.5    70.8    80.1    66.6    75.7    81.2
1993    86.7    106.5   93.7    73.2    82.7    68.7    78.2    81.4
1994    87.7    107.7   94.4    76.7    86.1    71.3    81.3    81.5

1995    88.2    106.5   94.5    79.3    88.4    74.5    83.9    82.8
1996    90.5    106.1   95.8    82.8    90.4    78.1    86.5    85.3
1997    92.0    105.8   96.5    87.2    94.0    82.4    90.4    86.9
1998    94.5    104.2   97.7    91.5    96.3    87.8    93.7    90.7
1999    97.3    102.6   99.0    96.3    98.8    93.9    97.3    94.8

2000   100.0    100.0  100.0   100.0   100.0   100.0   100.0   100.0
2001   102.7     96.0  100.4   100.5    98.4   104.7   100.2   107.0
2002   107.1     94.5  102.5   102.1    96.4   107.9    99.6   113.2
2003   111.1     95.2  105.2   105.2    96.0   110.5   100.0   116.7
2004   114.2     96.9  108.0   109.6    97.1   113.1   101.5   117.8

2005   116.1     97.7  109.3   113.5    99.1   116.1   103.8   118.9
2006   117.2     97.9  109.9   117.1   101.6   119.6   106.6   119.7
2007   118.9     97.0  110.1   119.4   102.8   123.1   108.4   122.6
2008   122.3	 95.1  111.4   120.4   100.9   126.7   108.1   128.8

See footnotes following table 4.
Source: Bureau of Labor Statistics



Table 3. Private business sector: Compound average annual rates of
growth in productivity and related measures, 1988-2008

Percent per year

       Output                                          Combined              
       per     Output  Multi-                          units of              
       hour    per     factor                  Capital capital Capital       
       of all  unit of Product-        Labor   Serv-   and     per hour of   
Year   persons capital ivity2  Output3 Input4  ices5   labor6  all persons   

1988    1.6     0.5     0.8     4.4     3.4     3.9     3.5     1.1
1989    1.0    -0.2     0.2     3.7     3.2     3.9     3.4     1.2

1990    2.2    -1.6     0.6     1.5    -0.1     3.2     0.9     3.8
1991    1.7    -3.3    -0.8    -0.7    -1.0     2.7     0.1     5.2
1992    4.3     1.8     2.6     4.1     1.0     2.3     1.4     2.5
1993    0.5     0.2     0.1     3.2     3.1     3.1     3.1     0.3
1994    1.0     1.3     0.8     5.0     4.5     3.6     4.2    -0.4

1995    0.2    -1.3    -0.2     3.0     2.7     4.3     3.2     1.5
1996    2.9     0.0     1.7     4.6     2.0     4.6     2.8     2.9
1997    1.9     0.0     0.9     5.3     3.9     5.3     4.4     1.9
1998    2.8    -1.4     1.3     4.9     2.3     6.4     3.6     4.3
1999    3.1    -1.4     1.4     5.2     2.4     6.7     3.7     4.5

2000    2.9    -2.2     1.2     3.9     1.2     6.3     2.7     5.3
2001    2.8    -4.0     0.4     0.5    -1.8     4.6     0.0     7.0
2002    4.2    -1.4     2.1     1.5    -2.0     2.9    -0.5     5.6
2003    3.9     0.8     2.8     3.1    -0.5     2.3     0.4     3.1
2004    3.0     1.8     2.7     4.2     1.1     2.4     1.5     1.1

2005    1.8     0.9     1.3     3.6     2.0     2.6     2.2     0.9
2006    0.9     0.3     0.6     3.1     2.4     2.8     2.5     0.6
2007    1.6    -0.7     0.4     2.1     1.1     2.7     1.7     2.3
2008	2.7    -2.1	1.2	0.8    -1.9	2.9    -0.3	4.9

See footnotes following table 4.
Source: Bureau of Labor Statistics



Table 4. Private nonfarm business sector: Compound average annual rates of
growth in productivity and related measures, 1988-2008

Percent per year

       Output                                          Combined              
       per     Output  Multi-                          units of              
       hour    per     factor                  Capital capital Capital       
       of all  unit of Product-        Labor   Serv-   and     per hour of   
Year   persons capital ivity2  Output3 Input4  ices5   labor6  all persons   

1988    1.7     0.9     1.0     4.6     3.5     3.8     3.6     0.9
1989    0.7    -0.4     0.0     3.5     3.3     3.9     3.5     1.2

1990    1.9    -1.8     0.4     1.5     0.1     3.4     1.1     3.8
1991    1.8    -3.5    -0.8    -0.8    -1.1     2.9     0.0     5.5
1992    4.1     1.4     2.4     3.9     1.0     2.5     1.5     2.6
1993    0.5     0.3     0.2     3.5     3.3     3.2     3.3     0.2
1994    1.1     1.1     0.8     4.8     4.1     3.7     4.0     0.1

1995    0.6    -1.1     0.1     3.3     2.7     4.5     3.2     1.7
1996    2.6    -0.3     1.4     4.5     2.2     4.8     3.0     3.0
1997    1.6    -0.3     0.7     5.2     4.0     5.5     4.5     1.9
1998    2.8    -1.5     1.3     5.0     2.4     6.6     3.7     4.4
1999    2.9    -1.6     1.3     5.2     2.6     6.9     3.9     4.5

2000    2.8    -2.5     1.1     3.8     1.2     6.5     2.7     5.5
2001    2.7    -4.0     0.4     0.5    -1.6     4.7     0.2     7.0
2002    4.2    -1.5     2.1     1.5    -2.0     3.1    -0.6     5.8
2003    3.7     0.7     2.6     3.1    -0.4     2.4     0.4     3.0
2004    2.8     1.9     2.6     4.2     1.2     2.3     1.5     1.0

2005    1.7     0.8     1.3     3.5     2.0     2.7     2.2     0.9
2006    0.9     0.2     0.5     3.2     2.6     2.9     2.7     0.7
2007    1.4    -0.9     0.2     2.0     1.2     2.9     1.8     2.4
2008	2.8    -2.0	1.1	0.8    -1.8	3.0    -0.3	5.0

See footnotes following table 4.
Source: Bureau of Labor Statistics



                        Footnotes, Tables 1-4

Source:  Output data are from the Bureau of Economic Analysis (BEA), 
U.S. Department of Commerce, and are modified by the Bureau of Labor 
Statistics (BLS), U.S. Department of Labor.  Compensation and hours data are 
from BLS.  Capital measures are based on data supplied by BEA and the U.S. 
Department of Agriculture.  See also Summary of Methods in this release.

(1) The private business sector 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. The private nonfarm 
    business sector also excludes farms but includes agricultural services.

(2) Output per unit of combined labor and capital inputs.

(3) Gross domestic product originating in the sector, 
    superlative chained index.

(4) Index of hours at work of all persons including employees, proprietors,
    and unpaid family workers classified by age, education, and gender.
    This superlative chain index is computed by combining changes in the 
    hours of each age, education, and gender group weighted by each 
    group's share of labor compensation. 

(5) A measure of the flow of capital services used in the sector.

(6) Labor input combined with capital input, using labor's and capital's 
    shares of costs as weights to form a superlative chained index. 

Last Modified Date: May 06, 2009
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