Technical Note

Labor Productivity: The industry labor productivity measures describe the relationship between 
industry output and the labor time involved in its production.  They show the changes from period to 
period in the amount of goods and services produced per hour. Although the labor productivity measures 
relate output to hours of all persons in an industry, they do not measure the specific contribution of labor 
or any other factor of production.  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; and the characteristics and effort of the workforce.

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. For manufacturing industries, 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 information on price 
changes primarily from BLS.  

Labor Hours:  The primary source of industry employment and hours data is the BLS Current 
Employment Statistics (CES) survey. The CES provides monthly data on the number of total and 
production worker jobs held by wage and salary workers in nonfarm establishments as well as data on 
the average weekly hours of production workers in those establishments. CES data are supplemented 
with data from the Current Population Survey (CPS) to estimate employment and hours of self-
employed and unpaid family workers in each industry. Data from the CPS, together with the CES data, 
are also used to estimate the historical average weekly hours of nonproduction workers for each industry. 
CES and CPS data are supplemented or further disaggregated for some industries using data from the 
BLS Quarterly Census of Employment and Wages (QCEW), the Census Bureau, or other sources. Hours 
of all persons in an industry are treated as homogeneous and are directly aggregated.

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 industry labor compensation by an 
index of real industry output.  Unit labor costs also describe the relationship between hourly 
compensation and labor productivity (real output per hour) and are an indicator of inflationary pressures 
on producers. Increases in hourly compensation increase unit labor costs; increases in labor productivity 
offset compensation increases and lower unit labor costs. 
      
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 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.