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 employees or 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.
      Long-term productivity trends tend to be more reliable indicators of the 
performance of an industry than are year-to-year changes.  The annual changes in 
an industry’s output and use of labor may reflect cyclical changes in the 
economy as well as long-term trends.  

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. 
Output measures for some mining and utilities industries are based on physical 
quantity data from the Energy Information Administration, U.S. Department of 
Energy, while output measures for some transportation industries are based on 
physical quantity data from the Bureau of Transportation Statistics, U.S. 
Department of Transportation. Other data sources for some industries include the 
U.S. Geological Survey, U.S. Department of the Interior; the U.S. Postal 
Service; the Federal Deposit Insurance Corporation; and the Postal Rate 
Commission.

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 nonsupervisory worker jobs held by wage and salary 
workers in nonfarm establishments, as well as data on the average weekly hours 
of nonsupervisory workers in those establishments. CES data are supplemented or 
further disaggregated for some industries using data from the BLS Quarterly 
Census of Employment and Wages (QCEW), the Bureau of the Census, or other 
sources. Data from the Current Population Survey (CPS) are also used to 
supplement the CES data. The industry productivity program estimates the average 
weekly hours of supervisory workers for each industry using data from the CPS 
together with the CES data. Data from the CPS are also used to estimate the 
employment and hours of self-employed and unpaid family workers in each 
industry.  Other sources of employment and hours data for some service 
industries include the American Association of Railroads, the U.S. Department of 
Transportation, and the U.S. Postal Service. Hours of all workers in an industry 
are treated as homogeneous and are directly aggregated.  

Unit Labor Costs

      Unit labor costs represent the cost of labor input 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 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. 
      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.