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. Data from the Bureau of Economic Analysis, U.S. 
Department of Commerce, is utilized in part to construct intra-industry transactions. Manufacturing 
industry output for 2015 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 2015 are constructed 
using data from the BLS Quarterly Census of Employment and Wages (QCEW).

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Last Modified Date: April 07, 2016