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Technical note

                                          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 
or services (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 measures are constructed primarily using data from the economic censuses and annual 
surveys of the U.S. Census Bureau, U.S. Department of Commerce, together with information on price 
changes primarily from BLS. Other data sources include the Energy Information Administration, U.S. 
Department of Energy; the Bureau of Transportation Statistics, U.S. Department of Transportation; the 
U.S. Geological Survey, U.S. Department of the Interior; the U.S. Postal Service; the Postal Rate 
Commission; and the Federal Deposit Insurance Corporation.

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 nonsupervisory 
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 average weekly hours paid of nonsupervisory 
workers, CPS data on hours of supervisory, 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. Other 
sources of employment and hours data for some service industries include the Association of American 
Railroads, the U.S. Department of Transportation, and the U.S. Postal Service. Hours worked are 
estimated separately for different types of workers and then are directly aggregated; no adjustments for 
labor composition are made.  

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 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. 
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 BLS Quarterly Census of Employment and Wages (QCEW), and the economic censuses and annual 
surveys of the Census Bureau, U.S. Department of Commerce.  

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Last Modified Date: May 21, 2014
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