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Technical note

Technical Note

Labor Productivity: Labor productivity describes the relationship between real output and the 
labor hours involved in its production. These measures show the changes from period to period in 
the amount of goods and services produced per hour worked. Although the labor productivity 
measures relate output in an industry to hours worked of all persons in that industry, they do not 
measure the specific contribution of labor to growth in output. Rather, they reflect the joint 
effects of many influences, including changes in technology; capital investment; utilization of 
capacity, energy, and materials; the use of purchased services inputs, including contract 
employment services; the organization of production; managerial skill; in addition to the 
characteristics and effort of the workforce.

Unit Labor Costs:  Unit labor costs represent the cost of labor required to produce one unit of 
output. The unit labor cost indexes are computed by dividing an index of nominal industry labor 
compensation by an index of real industry output. Unit labor costs also describe the relationship 
between compensation per hour and real output per hour (labor productivity). Increases in hourly 
compensation increase unit labor costs; increases in labor productivity offset compensation 
increases and lower unit labor costs.

Output:  Industry output is measured as an annual-weighted index of the changes in the various 
products (in real terms) provided for sale outside the industry. Real industry output is usually 
derived by deflating nominal sales or values of production using BLS price indexes, but for some 
industries it is measured by physical quantities of output. Industry output reflects sectoral value of 
production, derived by adjusting shipments for changes in inventories and removing intra-industry 
transactions. Industry output measures are constructed primarily using data from the economic 
censuses and annual surveys of the Census Bureau, U.S. Department of Commerce, together with 
data on price changes primarily from BLS. New with this update, data from the Bureau of 
Economic Analysis, U.S. Department of Commerce, is utilized in part to construct intra-industry 
transactions. Advance industry output for 2014 is constructed with data on industrial production 
from the Federal Reserve and manufacturers’ shipments, inventories, and orders from the Census 
Bureau. Other data sources include the Energy Information Administration, U.S. Department of 
Energy; and the U.S. Geological Survey, U.S. Department of Interior.

Labor Hours:  Labor hours reflect annual hours worked by all employed persons in an industry. 
Data on industry employment and hours come primarily from the BLS Current Employment 
Statistics (CES) survey and Current Population Survey (CPS). CES data on the number of total 
and production worker jobs held by wage and salary workers in nonfarm establishments are 
supplemented with CPS self-employed and unpaid family worker data to estimate industry 
employment. Hours worked estimates are derived using CES and CPS employment, CES data on 
the average weekly hours paid of production workers, CPS data on hours of nonproduction, self-
employed, and unpaid family workers, and ratios of hours worked to hours paid based on data 
from the National Compensation Survey (NCS). For some industries, employment and hours data 
are supplemented or further disaggregated using data from the BLS Quarterly Census of 
Employment and Wages (QCEW), the Census Bureau, or other sources. Hours worked are 
estimated separately for different types of workers and then are directly aggregated; no 
adjustments for labor composition are made.

Labor Compensation:  Labor compensation, defined as payroll plus supplemental payments, is a 
measure of the cost to the employer of securing the services of labor. Payroll includes salaries, 
wages, commissions, dismissal pay, bonuses, vacation and sick leave pay, and compensation in 
kind. Supplemental payments include both legally required expenditures and payments for 
voluntary programs. The legally required portion consists primarily of Federal old age and 
survivors’ insurance, unemployment compensation, and workers’ compensation. Payments for 
voluntary programs include all programs not specifically required by legislation, such as the 
employer portion of private health insurance and pension plans. Industry compensation measures 
are constructed primarily using data from the economic censuses and annual surveys of the 
Census Bureau, U.S. Department of Commerce. The estimates for 2014 are constructed using 
data from the BLS Quarterly Census of Employment and Wages (QCEW).

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Last Modified Date: April 28, 2015
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