BLS Handbook of Methods

In This Chapter

Chapter 10.
Productivity Measures: Business Sector and Major Subsectors

Analysis and Presentation
Indexes of labor productivity show changes in the ratio of output to hours of labor input. Similarly, indexes of multifactor productivity show changes in the ratio of output to combined inputs. However, these indexes should not be interpreted as presenting the contribution of the particular input, or combination of inputs, to production. Rather, changes over time in the output, labor input, or combined input measures underlying these productivity indexes may reflect the influence of other factors including variations in the characteristics and efforts of the work-force, changes in the managerial skill, changes in the organization of production, changes in the allocation of resources between sectors, the direct and indirect effects of R&D, and new technology.

Compensation and labor costs
Indexes of compensation per hour measure the hourly cost to employers of wages and salaries, as well as supplemental payments, which include employers' contributions to Social Security, unemployment insurance taxes, and payments for private health insurance and pension plans. Measures of real compensation per hour reflect the adjustment of hourly compensation for changes in the Consumer Price Index for All Urban Consumers (CPI-U).

Unit labor costs measure the cost of labor input required to produce one unit of output and are derived by dividing compensation in current dollars by the output index. Unit nonlabor payments measure the cost of nonlabor items such as depreciation, rent, interest, and indirect business taxes, in addition to corporate profits and profit-type income of proprietorships and partnerships.

Unit labor and nonlabor costs
The Bureau also prepares data on labor and nonlabor costs per unit of output for the business sector and its major components. Unit labor costs relate hourly compensation of all persons to output per hour and are defined as compensation per unit of real output. Nonlabor payments are the excess of current-dollar output in an economic sector over corresponding labor compensation, and include nonlabor costs as well as corporate profits and the profit-type income of proprietors. Nonlabor costs include interest, depreciation, rent, and indirect business taxes.

In aggregate sectors, productivity changes through time reflect movements within the various component industries as well as shifts in the relative importance of each of the industries. For example, changes in labor productivity and multifactor productivity are influenced by the relative shift of inputs (labor and capital) from low- to high-productivity industries and by productivity changes in the component subsectors.19

Short-term movements in productivity and unit labor costs often result from cyclical variation in output, as noted below, and may also reflect unusual events such as drought. These short-term movements are sometimes substantially greater or smaller than long-term averages of productivity and cost movements. For example, productivity growth for 1 or 2 years can be substantially greater than the average for the business cycle that includes these years.

Availability of results
Indexes of output per hour, compensation per hour, and related cost data are published twice each quarter in the BLS news release, "Productivity and Costs." In addition, quarterly and annual analyses are published from time to time in the Monthly Labor Review. Historical indexes of these and related data are available on request, as are detailed descriptions of data sources and computational procedures.

Multifactor productivity measures are announced each year in the news release, "Multifactor Productivity Trends." Included are annual indexes of multifactor productivity, capital inputs, and related measures for private business, private nonfarm business, and manufacturing.

Indexes of productivity and related cost data are available monthly in Monthly Labor Review, and can be accessed through the BLS home page at www.bls.gov on the Internet. These sources also include data from the multifactor and KLEMS productivity measures.

Information on trends in KLEMS productivity in manufacturing and the ratio of hours at work to hours paid is available on request from the Bureau.

Footnotes
19 The farm-nonfarm shift is examined in some detail by J.R. Norsworthy and L.J. Fulco in "Productivity and Costs in the Private Economy," Monthly Labor Review, June 1974, pp. 3-9.

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