Economic News Release

Multifactor Productivity Trends News Release

For release 10:00 am (EDT) Wednesday, May 9, 2012	USDL-12-0893
Technical information:  (202) 691-5606 • mfpweb@bls.gov • www.bls.gov/mfp
Media contact:          (202) 691-5902 • PressOffice@bls.gov
 
PRELIMINARY MULTIFACTOR PRODUCTIVITY TRENDS - 2011

Private nonfarm business sector multifactor productivity increased at a 0.5 
percent annual rate in 2011, the U.S. Bureau of Labor Statistics reported 
today. (See chart 1, table A.) The multifactor productivity gain in 2011 
reflected a 2.4 percent increase in output and a 1.9 percent increase in 
the combined inputs of capital and labor. The increase in combined inputs
of capital and labor was the largest annual rate of growth since 2006. 
(See table 1.) Capital services grew by 1.7 percent and labor input – 
which is the combined effect of hours worked and labor composition – grew 
by 2.0 percent, the largest gain in the series since 2006. Capital services
per hour of all persons were unchanged in 2011 for the private nonfarm 
business sector. Prior to this year, this measure had increased each year 
with the exception of 1994, when it was also unchanged.
	
Multifactor productivity measures the change in output per unit of combined 
capital and labor input. It is designed to measure the joint influences of 
technological change, efficiency improvements, returns to scale, reallocation
of resources, and other factors on economic growth, allowing for the effects
of capital and labor. Multifactor productivity, therefore, differs from labor
productivity (output per hour worked) measures that are published quarterly 
by BLS. Multifactor productivity includes information on capital services, 
hours worked, and shifts in the composition of labor. Estimates of capital 
services and labor composition are not included in the quarterly labor
productivity measures. Additionally, most of the source data needed to 
construct multifactor productivity measures are not available quarterly.

Private business sector multifactor productivity grew by 0.3 percent in
2011, reflecting a 2.1 percent increase in output and a 1.9 percent increase
in the combined inputs of capital and labor. The increase in combined 
inputs of capital and labor was the largest since 2006. (See table 2.)
 
Historical trends in the private nonfarm business sector

Multifactor productivity in the private nonfarm business sector grew 0.9 
percent annually from 1987 to 2011. (See table A.) For the 2007-2011 period,
multifactor productivity grew 0.4 percent as combined inputs fell 0.5 
percent, a larger decrease than the 0.1 percent decline in output. In 
contrast, the 0.9 percent increase in multifactor productivity from 1987
to 2011 was primarily due to output rising at a 2.8 percent annual rate,
faster than the 1.9 percent increase in combined inputs. The gains in 
output and combined inputs in 2011, 2.4 and 1.9 percent respectively, more
closely resembled the long-term trend from 1987 to 2011 than during the 
2007-2011 period. (See table 1.)

Annual labor productivity growth can be viewed as the sum of three 
components: multifactor productivity growth, the contribution of capital 
intensity, and the contribution of shifts in labor composition. Output
per hour shifted sharply upwards after the 1990-1995 period. In particular, 
the contribution of capital intensity to labor productivity growth became 
more pronounced after 1995.

For the 2007-2011 period, the contribution of capital intensity remained
relatively high, increasing at a 1.2 percent annual rate. Output per hour 
of all persons increased at a 2.0 percent annual rate, close to the 2.2 
percent annual rate seen during the entire 1987-2011 period. This was due
to multifactor productivity increasing at a 0.4 percent annual rate from 
2007 to 2011, slower than the gains of 1.3 and 1.4 percent that occurred 
during the 1995-2000 and 2000-2007 periods, respectively. 
(See chart 2, table B.) 

In 2011, the contribution of capital intensity in the private nonfarm 
business sector was unchanged. Combined with a modest 0.2 percent increase
in the contribution of labor composition and a 0.5 percent increase in
multifactor productivity, output per hour of all persons increased at a
0.7 percent annual rate. Labor productivity growth was much smaller than 
the average increase of 2.0 percent from 2007 to 2011. (See table B.)

Table A.  Compound annual growth rates for productivity, output, and inputs
in the private nonfarm business and private business sectors for selected
periods,1987-2011

In percent

                            1987-  1987-  1990-  1995-  2000-  2007-  2010-
                            2011   1990   1995   2000   2007   2011   2011

Private nonfarm business1

Productivity
  Multifactor Productivity2  0.9    0.5    0.5    1.3    1.4    0.4    0.5
    Output per hour of all
      persons                2.2    1.4    1.6    2.7    2.6    2.0    0.7
    Output per unit of
      capital services      -0.7   -0.4   -0.4   -1.0   -0.5   -1.5    0.6


Output                       2.8    3.2    2.9    5.0    2.7   -0.1    2.4


Inputs

  Combined inputs3           1.9    2.7    2.4    3.6    1.3   -0.5    1.9
   Labor input4              1.1    2.3    2.0    2.5    0.4   -1.4    2.0
     Hours                   0.6    1.7    1.3    2.2    0.1   -2.0    1.7
     Labor Composition5      0.5    0.6    0.7    0.3    0.3    0.6    0.3
   Capital services          3.6    3.6    3.3    6.0    3.2    1.4    1.7

Analytic ratio
  Capital services per
    hour of all persons      2.9    1.9    1.9    3.8    3.1    3.5    0.0


Private business1

Productivity
  Multifactor Productivity2  1.0    0.6    0.4    1.5    1.4    0.4    0.3
    Output per hour of all
      persons                2.2    1.6    1.5    2.9    2.7    2.0    0.4
    Output per unit of
      capital services      -0.6   -0.4   -0.3   -0.8   -0.5   -1.4    0.4


Output                       2.8    3.2    2.8    5.0    2.7   -0.1    2.1


Inputs

  Combined inputs3           1.8    2.6    2.4    3.4    1.2   -0.5    1.9
   Labor input4              1.0    2.1    2.0    2.4    0.3   -1.4    1.9
     Hours                   0.6    1.6    1.3    2.0    0.0   -2.0    1.7
     Labor Composition5      0.5    0.6    0.7    0.3    0.3    0.6    0.2
   Capital services          3.4    3.6    3.1    5.8    3.2    1.3    1.8

Analytic ratio
  Capital services per
    hour of all persons      2.9    2.0    1.8    3.7    3.1    3.4    0.1


1.  Excludes government enterprises.
2.  Output per combined units of labor input and capital services.
3.  The growth rate of each input is weighted by its share of current dollar
    costs.
4.  Hours at work by age, education, and gender group are weighted by each
    group’s share of the total wage bill.
5.  Ratio of labor input to hours.

Table B.  Compound annual growth rates in output per hour of all persons 
and the contributions of capital intensity, labor composition, and 
multifactor productivity in the private nonfarm business and private 
business sectors for selected periods, 1987-2011

In percent

                            1987-  1987-  1990-  1995-  2000-  2007-  2010-
                            2011   1990   1995   2000   2007   2011   2011

Private nonfarm business1

Output per hour
of all persons               2.2    1.4    1.6    2.7    2.6    2.0    0.7

  Contribution of
  capital intensity2         0.9    0.6    0.6    1.2    1.0    1.2    0.0

  Contribution of
  labor composition3         0.3    0.4    0.5    0.2    0.2    0.4    0.2

  Multifactor productivity4  0.9    0.5    0.5    1.3    1.4    0.4    0.5


Private business1

Output per hour
of all persons               2.3    1.6    1.5    2.9    2.7    2.0    0.4

  Contribution of
  capital intensity2         0.9    0.6    0.6    1.2    1.0    1.2    0.0

  Contribution of
  labor composition3         0.3    0.4    0.5    0.2    0.2    0.4    0.1

  Multifactor productivity4  1.0    0.6    0.4    1.5    1.4    0.4    0.3

1. Excludes government enterprises.
2. Capital services per hour multiplied by capital's share of current
   dollar costs.
3. Labor composition multiplied by labor's share of current dollar costs.
4. Output per combined units of labor input and capital services.

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


Technical Notes

The simplified methodology for preparing preliminary estimates of MFP is 
outlined in the June 2005 Monthly Labor Review article, “Preliminary 
estimates of multifactor productivity growth” located at 
http://www.bls.gov/opub/mlr/2005/06/art3abs.htm. This methodology is 
applied to both the private nonfarm business and private business 
sectors and measures are calculated only for the most recent year. 
Data for all previous years are identical to the March 21, 2012 
“Multifactor Productivity Trends” news release (USDL-12-0494).

Capital Services  

Capital services are the services derived from the stock of physical 
assets and software. Capital services measures constructed for the 
preliminary MFP measures are based on less detail only for the most 
recent year. The preliminary measures consist of eight asset types as
opposed to the 86 asset types for fixed business equipment and 
software, structures, inventories, and land included in estimates for 
all previous years. The assets included in the preliminary estimates 
are computers, software, communications and other information processing 
equipment, other fixed business equipment, structures, inventories, 
rental residences, and land. Investments, depreciation, and capital income
are estimated for each of these eight aggregates. Capital services are 
calculated by a chained superlative Tornqvist index combining stocks of 
the eight asset categories, weighted by capital income shares.

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 each group’s share of the total wage bill. The preliminary estimates 
of 2011 hours worked for the private nonfarm business and private business 
sectors are extrapolated based on the hours worked reported in the nonfarm
business and business sectors, respectively, in the February 2, 2012 
“Productivity and Costs” news release (USDL-12-0162). 

The labor composition index estimates the effect of shifts in the age, 
education, and gender composition of the work force on the efficiency of
hours worked. The preliminary MFP labor composition measure estimates the
number of hours worked by each type of worker based on Current Population 
Survey (CPS) data. The estimate of the 2011 labor composition index assumes
relative wages across groups remain constant between 2010 and 2011. 

Additional information concerning data sources and methods of measuring
labor composition can be found in Cindy Zoghi, 2007, 
“Measuring Labor Composition: A Comparison of Alternate Methodologies” 
http://www.bls.gov/bls/fesacp1121407.pdf.

Combined Inputs

Labor input and capital services are combined using chained superlative
Tornqvist aggregation, applying weights that represent each component's 
share of total costs. The chained superlative Tornqvist index uses changing 
weights; the share in each year is averaged with the preceding year's share.
Total costs are defined as the value of output 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. 


Capital Intensity

Capital intensity is the ratio of capital services to hours worked in the 
production process. The higher the capital to hours ratio, the more capital
intensive the production process is. 

In a production process, profit maximizing/cost-minimizing firms adjust the 
factor proportions of capital and labor if the price of one factor falls 
relative to the price of the other factor; there would be a tendency for the
firms to substitute the less expensive factor for the more expensive one. 
In the short run, changes in hours worked are more variable than changes
in capital services. Changes in hours worked in business cycles can result
in volatility of the capital intensity ratio over short periods of time. In
the long run an increase in wages relative to the price of capital will induce 
the firm to substitute capital for labor, resulting in an increase in capital 
intensity. 

Output

Private business sector output is a chain-type, current-weighted index 
constructed after excluding from gross domestic product (GDP) the following 
outputs: general government, nonprofit institutions, private households 
(including owner-occupied housing), and government enterprises. 
This release presents data for the private business and private nonfarm 
business sectors. The private business sector accounted for approximately 
74 percent of gross domestic product in 2010. 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. The output measures reflect the National Income and Product Accounts 
(NIPA) data released by the Bureau of Economic Analysis (BEA) on 
January 27, 2012 but do not reflect the revised data released by BEA on 
February 29, 2012.  The preliminary estimates of 2011 output for the
private nonfarm business and private business sectors are extrapolated
based on the output reported in the nonfarm business and business sectors, 
respectively, in the February 2, 2012 “Productivity and Costs” news release
(USDL-12-0162). 
 
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 or capital, or any other factor of 
production. Rather, 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, allowing for 
the effects of capital and labor. 

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.


Table 1. Private nonfarm business sector: productivity and related measures
for the 1987-2011 period1

Annual percent change from previous year

                                                       Combined           
               Output                                  units of           
       Output  per                                     labor in-              
       per     unit of Multi-                          put and   Capital      
       hour    capital factor                  Capital capital   services     
       of all  servic- Product-        Labor   Servic- servic-   per hour of  
Year   persons es      ivity2  Output3 Input4  es5     es6       all persons  

1988    1.7     0.9     1.0     4.6     3.5     3.6     3.5       0.7
1989    0.8    -0.4     0.0     3.5     3.3     4.0     3.5       1.2

1990    1.9    -1.7     0.4     1.4     0.1     3.2     1.1       3.7
1991    1.7    -3.6    -1.0    -0.9    -1.1     2.9     0.1       5.5
1992    4.0     1.5     2.3     3.8     1.0     2.3     1.4       2.5
1993    0.6     0.4     0.3     3.6     3.3     3.2     3.3       0.3
1994    1.1     1.1     0.7     4.7     4.1     3.6     3.9       0.0

1995    0.5    -1.1     0.0     3.3     2.7     4.4     3.2       1.6
1996    2.6    -0.3     1.4     4.4     2.2     4.8     3.0       2.9
1997    1.5    -0.4     0.6     5.1     4.0     5.5     4.5       1.9
1998    2.9    -1.2     1.5     5.2     2.4     6.4     3.6       4.2
1999    3.3    -1.2     1.6     5.6     2.6     6.9     3.9       4.5

2000    3.4    -2.0     1.6     4.5     1.2     6.5     2.8       5.5
2001    3.1    -3.6     0.7     1.0    -1.6     4.7     0.3       7.0
2002    4.7    -1.3     2.4     1.9    -2.0     3.3    -0.4       6.1
2003    3.8     0.5     2.5     3.1    -0.4     2.7     0.6       3.3
2004    2.6     1.5     2.4     4.0     1.2     2.5     1.6       1.1

2005    1.6     0.4     1.1     3.4     2.0     3.0     2.3       1.2
2006    0.9    -0.1     0.4     3.2     2.5     3.3     2.8       1.0
2007    1.6    -0.8     0.3     2.2     1.2     3.0     1.8       2.5
2008    0.7    -4.0    -1.4    -1.5    -1.5     2.7    -0.1       4.9
2009    2.5    -5.8    -1.0    -5.0    -6.5     0.8    -4.0       8.7

2010    4.1     3.6     3.5     4.0     0.5     0.4     0.5       0.6
2011	0.7	0.6	0.5	2.4	2.0	1.7	1.9	  0.0

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



Table 2. Private business sector: productivity and related measures
for the 1987-2011 period1

Annual percent change from previous year

                                                       Combined           
               Output                                  units of           
       Output  per                                     labor in-              
       per     unit of Multi-                          put and   Capital      
       hour    capital factor                  Capital capital   services     
       of all  servic- Product-        Labor   Servic- servic-   per hour of  
Year   persons es      ivity2  Output3 Input4  es5     es6       all persons  

1988    1.5     0.5     0.8     4.3     3.4     3.8     3.5       1.0
1989    1.0    -0.2     0.3     3.7     3.2     3.9     3.4       1.2

1990    2.2    -1.5     0.6     1.5    -0.1     3.0     0.9       3.7
1991    1.6    -3.4    -1.0    -0.8    -1.0     2.7     0.2       5.2
1992    4.2     1.8     2.6     4.0     1.0     2.1     1.4       2.3
1993    0.6     0.2     0.2     3.3     3.1     3.1     3.1       0.4
1994    0.9     1.4     0.7     5.0     4.5     3.5     4.2      -0.4

1995    0.1    -1.3    -0.3     2.9     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    1.8    -0.1     0.8     5.2     3.9     5.3     4.4       1.8
1998    3.0    -1.1     1.5     5.0     2.3     6.2     3.5       4.1
1999    3.5    -1.0     1.8     5.6     2.4     6.7     3.7       4.5

2000    3.5    -1.7     1.7     4.6     1.2     6.3     2.8       5.3
2001    3.2    -3.5     0.8     0.9    -1.8     4.6     0.1       7.0
2002    4.6    -1.2     2.4     2.0    -1.9     3.2    -0.4       5.9
2003    3.9     0.6     2.7     3.2    -0.4     2.6     0.5       3.3
2004    2.8     1.4     2.4     4.1     1.1     2.6     1.6       1.3

2005    1.7     0.2     1.0     3.5     2.0     3.2     2.4       1.5
2006    1.0     0.0     0.5     3.1     2.4     3.1     2.6       1.0
2007    1.6    -0.7     0.3     2.1     1.2     2.8     1.7       2.3
2008    0.7    -3.7    -1.2    -1.3    -1.4     2.4    -0.1       4.6
2009    2.6    -5.4    -0.8    -4.8    -6.5     0.6    -4.1       8.4

2010    4.1     3.5     3.4     4.0     0.6     0.5     0.5       0.6
2011	0.4	0.4	0.3	2.1	1.9	1.8	1.9	  0.1

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



Table 3. Private nonfarm business sector: indexes of productivity and related
measures, 1987-2011(1)

Indexes 2005=100

                                                       Combined           
               Output                                  units of           
       Output  per                                     labor in-              
       per     unit of Multi-                          put and   Capital      
       hour    capital factor                  Capital capital   services     
       of all  servic- Product-        Labor   Servic- servic-   per hour of  
Year   persons es      ivity2  Output3 Input4  es5     es6       all persons  

1987    66.3    111.4   82.3    54.2    75.5    48.7    65.9      59.5
1988    67.4    112.4   83.2    56.7    78.2    50.5    68.2      59.9
1989    67.9    112.0   83.2    58.7    80.8    52.5    70.6      60.6

1990    69.2    110.0   83.5    59.6    80.8    54.2    71.4      62.9
1991    70.3    106.0   82.7    59.1    79.9    55.7    71.4      66.3
1992    73.1    107.6   84.6    61.3    80.7    57.0    72.5      67.9
1993    73.6    108.0   84.9    63.5    83.4    58.8    74.9      68.1
1994    74.4    109.2   85.5    66.5    86.9    60.9    77.8      68.1

1995    74.7    107.9   85.5    68.7    89.2    63.6    80.3      69.2
1996    76.7    107.6   86.7    71.7    91.1    66.7    82.8      71.3
1997    77.8    107.2   87.2    75.4    94.8    70.4    86.5      72.6
1998    80.1    105.9   88.5    79.3    97.1    74.9    89.6      75.6
1999    82.7    104.7   89.9    83.8    99.6    80.0    93.1      79.0

2000    85.6    102.6   91.4    87.5   100.8    85.3    95.8      83.4
2001    88.3     99.0   92.1    88.4    99.2    89.3    96.0      89.2
2002    92.4     97.7   94.2    90.1    97.2    92.3    95.6      94.6
2003    95.8     98.1   96.6    92.9    96.9    94.7    96.2      97.7
2004    98.4     99.6   98.9    96.7    98.1    97.1    97.7      98.8

2005   100.0    100.0  100.0   100.0   100.0   100.0   100.0     100.0
2006   100.9     99.9  100.4   103.2   102.5   103.3   102.8     101.0
2007   102.6     99.1  100.7   105.4   103.8   106.4   104.7     103.6
2008   103.3     95.0   99.3   103.9   102.2   109.3   104.6     108.7
2009   105.8     89.6   98.3    98.7    95.6   110.1   100.4     118.1

2010   110.2     92.8  101.7   102.6    96.1   110.6   100.9     118.8
2011   110.9	 93.4  102.3   105.1	98.0   112.6   102.8     118.8

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



Table 4. Private business sector: indexes of productivity and related
measures, 1987-2011(1)

Indexes 2005=100

                                                       Combined           
               Output                                  units of           
       Output  per                                     labor in-              
       per     unit of Multi-                          put and   Capital      
       hour    capital factor                  Capital capital   services     
       of all  servic- Product-        Labor   Servic- servic-   per hour of  
Year   persons es      ivity2  Output3 Input4  es5     es6       all persons  

1987    65.4    109.3   81.4    54.2    76.4    49.6    66.6      59.9
1988    66.4    109.9   82.1    56.5    78.9    51.4    68.9      60.5
1989    67.1    109.7   82.3    58.6    81.5    53.5    71.3      61.2

1990    68.6    108.1   82.8    59.5    81.4    55.1    71.9      63.5
1991    69.7    104.4   82.0    59.1    80.5    56.6    72.0      66.8
1992    72.6    106.3   84.1    61.4    81.4    57.8    73.0      68.3
1993    73.1    106.5   84.3    63.4    83.9    59.6    75.3      68.6
1994    73.8    108.0   84.9    66.6    87.7    61.7    78.4      68.3

1995    73.8    106.5   84.6    68.5    90.0    64.3    80.9      69.3
1996    76.0    106.6   86.1    71.7    91.8    67.2    83.2      71.3
1997    77.3    106.5   86.8    75.4    95.4    70.8    86.9      72.6
1998    79.6    105.3   88.0    79.2    97.6    75.2    89.9      75.6
1999    82.4    104.3   89.7    83.6    99.9    80.2    93.3      79.0

2000    85.3    102.6   91.2    87.4   101.1    85.3    95.9      83.2
2001    88.0     98.9   91.9    88.3    99.3    89.2    96.0      89.0
2002    92.1     97.8   94.1    90.0    97.4    92.1    95.6      94.2
2003    95.7     98.4   96.7    92.9    97.0    94.4    96.1      97.3
2004    98.4     99.8   99.0    96.7    98.1    96.9    97.7      98.6

2005   100.0    100.0  100.0   100.0   100.0   100.0   100.0     100.0
2006   101.0    100.0  100.5   103.1   102.4   103.1   102.6     101.0
2007   102.6     99.3  100.8   105.2   103.6   106.0   104.4     103.2
2008   103.3     95.7   99.6   103.8   102.1   108.5   104.3     108.0
2009   106.0     90.5   98.8    98.9    95.5   109.2   100.1     117.1

2010   110.3     93.7  102.2   102.8    96.0   109.7   100.6     117.8
2011   110.8	 94.0  102.5   105.0	97.9   111.7   102.5     117.8

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



Footnotes, Tables 1-4

Source:  The Bureau of Labor Statistics (BLS) develops productivity measures
using output and compensation data published by the Bureau of Economic 
Analysis (BEA), hours data published by other BLS programs, and capital data
supplied by BEA and U.S. Department of Agriculture. Also see Technical Notes 
in this release.

(1) The private business sector covers gross domestic product with the 
    exception of 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 further excludes farms but includes agricultural
    services.

(2) Output per combined units of labor input and capital services.

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

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

(5) A measure of the flow of capital services used in the sector. Capital 
    services measure the services derived from the stock of physical assets
    and software. The assets included are fixed business equipment, 
    structures, inventories, and land.

(6) The growth rates of labor input and capital services are combined by 
    weighting with their respective shares of current dollar costs, and 
    aggregating into a chained superlative index.

Last Modified Date: May 09, 2012
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