Multifactor Productivity Trends News Release

For release 10:00 am (EDT) Thursday, May 19, 2011	USDL-11-0723
Technical information:	(202) 691-5606  •  mfpweb@bls.gov  •  www.bls.gov/mfp
Media contact:	        (202) 691-5902  •  PressOffice@bls.gov
 
PRELIMINARY MULTIFACTOR PRODUCTIVITY TRENDS - 2010

Private nonfarm business sector multifactor productivity increased at a 3.2 
percent annual rate in 2010, the largest increase recorded in this series
which began in 1987, the U.S. Bureau of Labor Statistics reported today. 
(See chart 1, table A.)  The multifactor productivity gain in 2010 reflected
a 3.7 percent increase in output and a 0.5 percent increase in the combined
inputs of capital and labor.  Capital services grew by 0.6 percent, the
smallest gain in the series which began in 1987.  The combination of fast-
rising output and a modest increase in capital services caused output per
unit of capital services to jump 3.0 percent, the largest gain since the series
began in 1987.  Labor input, the combined effect of hours worked and labor
composition, increased 0.5 percent in the private nonfarm business sector 
after falling in the previous two years.  

Multifactor productivity measures the change in output per unit of combined 
capital and labor.  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.  Multifactor productivity, therefore, differs
from labor productivity (output per hour worked) measures that BLS publishes 
quarterly since it includes information on capital services and other data that
are not available on a quarterly basis.  Additionally, multifactor productivity
measures for the private business and private nonfarm business sectors account
for shifts in the composition of labor.  Estimates of labor composition are not
included in the quarterly labor productivity measures.

Private business sector multifactor productivity grew by 3.2 percent in 2010,
the largest gain in the series which began in 1987. (See table 2.)  The 
multifactor productivity gain in 2010 reflected a 3.7 percent increase in 
output and a 0.6 percent increase in the combined inputs of capital and labor. 
  
Historical trends in private nonfarm business

Multifactor productivity in private nonfarm business grew 1.0 percent annually
from 1987 to 2010. (See table A.)  For the 2007-2010 period, multifactor 
productivity grew 0.7 percent, primarily due to a 0.4 percent decline in output
coupled with a 1.1 percent decline in combined inputs.  In contrast, the 3.2
percent increase in multifactor productivity in 2010 was a result of an 
increase in output much larger than the increase in combined inputs.  The 3.7
percent rise in output over the year represents the largest increase since 
2004. (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.  The historical relationship 
between labor productivity growth and these three components can be seen in 
chart 2 and table B.  Chart 2 shows how output per hour shifted upwards after
the 1990-1995 period.  In particular, the contribution of capital intensity to
labor productivity growth became more pronounced after 1995.  

For the 2007-2010 period, the contribution of capital intensity increased at a
1.6 percent annual rate and the contribution of labor composition increased at
a 0.4 percent annual rate, faster than the gains seen in the 1995-2000 and 
2000-2007 periods.  Gains made in private nonfarm business output per hour due
to the rising contributions of capital intensity and of labor composition were 
tempered by slower multifactor productivity growth.  As a result, output per 
hour was little changed during 2007-2010 compared to the two previous periods.
(See chart 2, table B.)

The methodology for measuring preliminary multifactor productivity for 2010 is
a simplified version of the methodology that BLS uses when more detailed 
information is available.  Measures will be revised in early 2012. 

Table A.  Compound annual growth rates for productivity, output, and inputs
in the private nonfarm business and private business sectors for selected
periods,1987-2010

In percent


                            1987-  1987-  1990-  1995-  2000-  2007-  2009-
                            2010   1990   1995   2000   2007   2010   2010

Private nonfarm business1

Productivity
  Multifactor Productivity2  1.0    0.5    0.5    1.3    1.4    0.7    3.2
    Output per hour of all
      persons                2.3    1.4    1.6    2.8    2.6    2.8    3.6
    Output per unit of
      capital services      -0.8   -0.4   -0.4   -1.0   -0.5   -1.9    3.0


Output                       2.9    3.2    2.9    5.0    2.7   -0.4    3.7


Inputs

  Combined inputs3           1.9    2.7    2.4    3.6    1.3   -1.1    0.5
   Labor input4              1.1    2.3    2.0    2.5    0.4   -2.5    0.5
     Hours                   0.6    1.7    1.3    2.2    0.1   -3.1    0.1
     Labor Composition5      0.5    0.6    0.7    0.3    0.3    0.6    0.4
   Capital services          3.7    3.6    3.3    6.0    3.2    1.5    0.6

Analytic ratio
  Capital services per
    hour of all persons      3.1    1.9    1.9    3.8    3.2    4.7    0.4


Private business1

Productivity
  Multifactor Productivity2  1.0    0.6    0.4    1.5    1.5    0.8    3.2
    Output per hour of all
      persons                2.3    1.6    1.5    2.9    2.7    2.8    3.6
    Output per unit of
      capital services      -0.6   -0.4   -0.3   -0.7   -0.4   -1.8    3.0


Output                       2.9    3.2    2.8    5.0    2.7   -0.3    3.7


Inputs

  Combined inputs3           1.8    2.6    2.4    3.4    1.2   -1.1    0.6
   Labor input4              1.0    2.1    2.0    2.3    0.3   -2.5    0.5
     Hours                   0.5    1.6    1.3    2.0    0.0   -3.0    0.1
     Labor Composition5      0.5    0.6    0.7    0.3    0.3    0.6    0.3
   Capital services          3.5    3.6    3.1    5.8    3.1    1.4    0.6

Analytic ratio
  Capital services per
    hour of all persons      3.0    2.0    1.8    3.7    3.1    4.6    0.5


1.  Excludes government enterprises.
2.  Output per unit of combined 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, 1987-2010

In percent



                            1987-  1987-  1990-  1995-  2000-  2007-  2009-
                            2010   1990   1995   2000   2007   2010   2010

Private nonfarm business1

Output per hour
of all persons               2.3    1.4    1.6    2.8    2.6    2.8    3.6

   Contribution of
   capital intensity2        1.0    0.6    0.6    1.2    1.0    1.6    0.2

   Contribution of
   labor composition3        0.3    0.4    0.5    0.2    0.2    0.4    0.2

   Multifactor
   productivity4             1.0    0.5    0.5    1.3    1.4    0.7    3.2


Private business1

Output per hour
of all persons               2.3    1.6    1.5    2.9    2.7    2.8    3.6

   Contribution of
   capital intensity2        1.0    0.6    0.6    1.2    1.0    1.6    0.2

   Contribution of
   labor composition3        0.3    0.4    0.5    0.2    0.2    0.4    0.2

   Multifactor
   productivity4             1.0    0.6    0.4    1.5    1.5    0.8    3.2

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 unit of combined labor input and capital services.

Multifactor productivity plus the 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.  Measures for all previous years
are not different from the March 30, 2011 “Multifactor Productivity Trends”
news release (USDL-11-0435).

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 is composed of hours worked and labor composition
for the private business and private nonfarm business sectors. It is calculated
by the 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 2010
hours worked for the private nonfarm business and private business sectors are
extrapolated from the hours worked reported in the nonfarm business and
business sectors, respectively, in the February 3, 2011 “Productivity and
Costs” news release (USDL-11-0128).  
	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 index calculates the number of
hours worked by each type of worker based on Current Population Survey (CPS)
data.  The estimate of the 2010 labor composition index assumes relative wages
across groups remain constant between 2009 and 2010.  
	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 of the 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 is less
than 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 capital
intensity 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.  
	Rising labor costs are, in fact, an incentive for firms to introduce 
automated production processes.  Industry estimates of capital to hours ratios
can be obtained at http://www.bls.gov/mfp/mprdload.htm.

Output:  Private business sector output is a chain-type, current-weighted index
constructed after excluding the following outputs from gross domestic product
(GDP): 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 76 percent of gross
domestic product in 2005.  Additionally, the private nonfarm business sector
excludes farms from the private business sector, but includes agricultural
services.  Multifactor productivity 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 28, 2011 but do not reflect
the revised data released by BEA on February 25, 2011.  The preliminary
estimates of 2010 output for the private nonfarm business and private business
sectors are extrapolated from the output reported in the nonfarm business and
business sectors, respectively, in the February 3, 2011 “Productivity and
Costs” news release (USDL-11-0128).  
 
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, 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 1987-2010 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     0.3     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       4.1
1999    3.3    -1.1     1.7     5.6     2.6     6.8     3.9       4.5

2000    3.4    -1.9     1.6     4.5     1.2     6.5     2.8       5.5
2001    3.1    -3.7     0.7     1.0    -1.6     4.9     0.3       7.1
2002    4.7    -1.4     2.4     1.9    -2.0     3.4    -0.4       6.1
2003    3.7     0.3     2.4     3.1    -0.4     2.8     0.6       3.4
2004    2.8     1.6     2.5     4.2     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     0.0     0.4     3.2     2.5     3.2     2.8       1.0
2007    1.7    -0.7     0.4     2.2     1.2     3.0     1.8       2.4
2008    1.1    -3.8    -1.0    -1.1    -1.5     2.8    -0.1       5.1
2009    3.7    -4.7     0.1    -3.7    -6.3     1.1    -3.8       8.8

2010    3.6     3.0     3.2     3.7     0.5     0.6     0.5       0.4

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



Table 2. Private business sector: productivity and related measures
for the 1987-2010 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     3.5       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    -1.2    -0.3     2.9     2.7     4.2     3.2       1.4
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    -0.9     1.9     5.6     2.4     6.6     3.7       4.5

2000    3.5    -1.7     1.7     4.6     1.2     6.3     2.8       5.3
2001    3.2    -3.6     0.8     0.9    -1.8     4.8     0.2       7.1
2002    4.6    -1.3     2.3     2.0    -1.9     3.3    -0.4       5.9
2003    3.9     0.5     2.6     3.1    -0.4     2.7     0.5       3.4
2004    2.9     1.6     2.6     4.2     1.1     2.5     1.6       1.3

2005    1.6     0.4     1.1     3.4     2.0     3.0     2.3       1.2
2006    1.0     0.2     0.5     3.1     2.4     2.9     2.6       0.8
2007    1.6    -0.8     0.3     2.1     1.2     2.9     1.8       2.4
2008    1.2    -3.6    -0.9    -0.9    -1.5     2.7     0.0       4.9
2009    3.7    -4.5     0.2    -3.6    -6.3     1.0    -3.8       8.6

2010    3.6     3.0     3.2     3.7     0.5     0.6     0.6       0.5

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



Table 3. Private nonfarm business sector: indexes of productivity and related
measures, 1987-2010 period1

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    66.2    111.6   82.3    54.2    75.6    48.6    65.9      59.4
1988    67.3    112.6   83.2    56.7    78.2    50.4    68.2      59.8
1989    67.8    112.1   83.2    58.7    80.8    52.4    70.6      60.5

1990    69.1    110.2   83.5    59.6    80.8    54.1    71.4      62.8
1991    70.3    106.2   82.7    59.0    79.9    55.6    71.4      66.2
1992    73.1    107.8   84.6    61.3    80.7    56.9    72.4      67.8
1993    73.6    108.1   84.9    63.5    83.4    58.7    74.8      68.0
1994    74.3    109.3   85.5    66.5    86.9    60.8    77.8      68.0

1995    74.7    108.1   85.5    68.7    89.2    63.5    80.3      69.1
1996    76.6    107.7   86.7    71.7    91.1    66.6    82.7      71.1
1997    77.8    107.3   87.2    75.4    94.8    70.2    86.5      72.5
1998    80.1    106.1   88.5    79.3    97.1    74.7    89.6      75.5
1999    82.7    104.9   89.9    83.7    99.6    79.8    93.1      78.9

2000    85.5    102.9   91.4    87.5   100.8    85.0    95.7      83.2
2001    88.2     99.1   92.0    88.4    99.2    89.2    96.0      89.0
2002    92.3     97.7   94.2    90.1    97.2    92.2    95.6      94.5
2003    95.7     98.0   96.5    92.8    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    100.0  100.4   103.2   102.5   103.2   102.8     101.0
2007   102.6     99.2  100.8   105.5   103.8   106.3   104.6     103.4
2008   103.8     95.4   99.8   104.3   102.2   109.3   104.6     108.7
2009   107.6     90.9   99.9   100.5    95.8   110.5   100.6     118.3

2010   111.4     93.7  103.0   104.2    96.3   111.1   101.1     118.8

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



Table 4. Private business sector: indexes of productivity and related
measures, 1987-2010 period1

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    109.1   81.3    54.2    76.4    49.6    66.6      59.9
1988    66.4    109.7   82.0    56.5    78.9    51.5    68.9      60.5
1989    67.1    109.5   82.2    58.6    81.5    53.5    71.3      61.3

1990    68.6    107.9   82.7    59.5    81.4    55.2    72.0      63.6
1991    69.7    104.2   81.9    59.0    80.6    56.7    72.1      66.9
1992    72.6    106.1   84.0    61.4    81.4    57.9    73.1      68.4
1993    73.0    106.3   84.1    63.4    83.9    59.7    75.4      68.7
1994    73.7    107.8   84.8    66.6    87.7    61.8    78.5      68.4

1995    73.8    106.4   84.5    68.5    90.0    64.3    81.0      69.3
1996    75.9    106.5   86.0    71.6    91.8    67.3    83.3      71.3
1997    77.3    106.4   86.7    75.3    95.4    70.8    86.9      72.6
1998    79.6    105.2   88.0    79.2    97.6    75.2    90.0      75.6
1999    82.4    104.2   89.6    83.6    99.9    80.2    93.3      79.0

2000    85.3    102.5   91.2    87.4   101.1    85.3    95.9      83.2
2001    88.0     98.8   91.8    88.2    99.3    89.3    96.1      89.1
2002    92.1     97.5   94.0    90.0    97.4    92.2    95.7      94.4
2003    95.6     98.0   96.5    92.8    97.0    94.7    96.2      97.6
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   101.0    100.2  100.5   103.1   102.4   102.9   102.6     100.8
2007   102.6     99.4  100.9   105.3   103.6   106.0   104.4     103.3
2008   103.8     95.8   99.9   104.3   102.1   108.8   104.4     108.3
2009   107.6     91.5  100.2   100.6    95.6   109.9   100.4     117.6

2010   111.4     94.2  103.3   104.3    96.1   110.6   101.0     118.2

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 includes all of gross domestic product except
    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 also excludes farms but includes agricultural services.

(2) Output per unit of combined 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 19, 2011