Multifactor productivity trends, 2014

For release 10:00 a.m. (EDT) Thursday, March 24, 2016	USDL-16-0612
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MULTIFACTOR PRODUCTIVITY TRENDS – 2014

Private nonfarm business sector multifactor productivity increased at a 0.7
percent annual rate in 2014, the U.S. Bureau of Labor Statistics reported 
today. (See chart 1 and table A.) This gain in 2014 reflected a 3.1-percent
increase in output and a 2.4-percent increase in the combined inputs of 
capital and labor. Capital services grew by 2.1 percent, the largest gain
since 2008, and labor input – which is the combined effect of hours worked
and labor composition – grew 2.5 percent. Capital intensity, defined as 
capital services per hour, decreased at a rate of 0.3 percent in 2014 after
no change in 2013. Capital intensity decreased three of the last four years,
the only declines in this measure which began in 1987, indicating that 
capital is no longer keeping pace with labor. (See table 1.) 

Multifactor productivity measures the change in output relative to the 
change in capital and labor inputs used to produce that output. It is 
designed to measure the joint influences of technological change, efficiency
improvements, returns to scale, reallocation of resources, and other 
factors of economic growth, accounting for the effects of capital and 
labor. Multifactor productivity annual measures differ from BLS quarterly
labor productivity (output per hour worked) measures because the former 
also include the influences of capital services and shifts in the 
composition of the workforce. Additionally, much of the source data 
needed to construct multifactor productivity measures are not available
on a quarterly basis.
	
Private business sector multifactor productivity increased at a 0.7 
percent annual rate in 2014, reflecting a 3.1- percent increase in output
and a 2.4-percent increase in the combined inputs of capital and labor. 
(See table 2 and table A.)
 
Historical trends in the private nonfarm business sector

Multifactor productivity in the private nonfarm business sector grew
0.9 percent annually from 1987 to 2014, reflecting a 2.9-percent growth
in output and a 1.9-percent growth in combined inputs. (See table A.) 
For the more recent 2007-2014 period, multifactor productivity grew 
0.4 percent, due to a 1.1-percent increase in output coupled with a 
0.7-percent increase in combined inputs. The increase in combined
inputs reflected a 1.4-percent increase in capital services, a 
0.1-percent decline in hours, and a 0.4-percent increase in labor
composition. (See table A.)

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.
For the 2007-2014 period, multifactor productivity and the contribution
of capital intensity to labor productivity grew 0.4 percent and 0.6
percent, respectively. (See chart 2 and table B.) The contributions 
to labor productivity have decelerated from the 1995-2000 and 2000-2007
periods, due to multifactor productivity and the contribution of capital
intensity returning to pre-1995 levels. 

Information processing equipment (IPE) and intellectual property products 
(IPP) showed the strongest growth among the various capital asset 
components from 1987 to 2014. For the 2007-2014 period, real capital 
services of IPE grew 4.2 percent annually and IPP grew 2.9 percent 
annually in the private nonfarm business sector. (See table 5.) 
Both IPE and IPP have experienced a steady deceleration in growth 
from their peak in 1995-2000; in the 1995-2000 period IPE grew 
18.4 percent and IPP grew 8.4 percent.

Revisions

The revised multifactor productivity measure for 2014 is based on
more recent source data than were available for the preliminary 
multifactor productivity release, published on June 23, 2015, 
www.bls.gov/news.release/archives/prod3_06232015.pdf. 

Multifactor productivity growth rates in the private nonfarm 
business sector were revised from 0.8 percent to 0.7 percent in 
2014, and from 0.9 percent to -0.1 percent in 2013 due primarily 
to a revision to output. (See table C.)

Table A.  Productivity, output, and inputs in the private nonfarm business 
and private business sectors for selected periods, 1987-2014

Compound annual growth rates


                            1987-  1987-  1990-  1995-  2000-  2007-  2013-
                            2014   1990   1995   2000   2007   2014   2014

Private nonfarm business1

Productivity
  Multifactor productivity2  0.9    0.7    0.5    1.5    1.4    0.4    0.7
  Labor productivity3        2.0    1.6    1.6    2.9    2.6    1.2    0.7
  Output per unit of
    capital services        -0.4   -0.5   -0.3   -0.8   -0.4   -0.3    1.0


Output                       2.9    3.3    3.0    5.0    2.8    1.1    3.1


Inputs

  Combined inputs4           1.9    2.6    2.4    3.5    1.4    0.7    2.4
   Labor input5              1.3    2.0    2.0    2.4    0.6    0.3    2.5
     Hours                   0.8    1.7    1.3    2.1    0.2   -0.1    2.4
     Labor Composition6      0.4    0.3    0.7    0.3    0.4    0.4    0.1
   Capital services          3.3    3.8    3.3    5.9    3.2    1.4    2.1

Analytic ratio
  Capital services per
    hour of all persons      2.5    2.0    2.0    3.7    3.0    1.6   -0.3


Private business1

Productivity
  Multifactor productivity2  1.0    0.8    0.5    1.6    1.4    0.4    0.7
  Labor productivity3        2.1    1.7    1.6    3.0    2.7    1.3    0.6
  Output per unit of
    capital services        -0.4   -0.4   -0.2   -0.6   -0.4   -0.3    1.0


Output                       2.9    3.3    2.9    5.1    2.8    1.2    3.1


Inputs

  Combined inputs4           1.9    2.5    2.4    3.4    1.4    0.7    2.4
   Labor input5              1.2    1.9    2.1    2.3    0.5    0.3    2.6
     Hours                   0.8    1.5    1.4    2.0    0.1   -0.1    2.5
     Labor Composition6      0.4    0.3    0.7    0.3    0.4    0.4    0.1
   Capital services          3.2    3.7    3.2    5.7    3.2    1.4    2.0

Analytic ratio
  Capital services per
    hour of all persons      2.4    2.1    1.8    3.7    3.0    1.5   -0.5


1 Excludes government enterprises.
2 Output per combined units of labor input and capital services.
3 Output per hour worked
4 The growth rate of each input is weighted by its share of current dollar costs.
5 Hours at work by age, education, and gender group are weighted by each group’s share of the total wage bill.
6 Ratio of labor input to hours.
7 Capital services per hour.

Table B.  Labor productivity and the contributions of capital intensity, 
labor composition, and multifactor productivity to labor productivity in 
the private nonfarm business and private business sectors for selected 
periods, 1987-2014

Compound annual growth rates



                            1987-  1987-  1990-  1995-  2000-  2007-  2013-
                            2014   1990   1995   2000   2007   2014   2014

Private nonfarm business1

Labor productivity2          2.0    1.6    1.6    2.9    2.6    1.2    0.7

Contribution of
capital intensity3           0.8    0.7    0.6    1.2    1.0    0.6   -0.1

  Contribution of
  information processing
  equipment4                 0.3    0.3    0.3    0.6    0.3    0.1    0.0

  Contribution of
  research and develop-
  ment5                      0.1    0.1    0.1    0.1    0.1    0.1    0.0

  Contribution of all
  other intellectual    
  property products6         0.2    0.2    0.4    0.4   -0.1    0.1    0.1

  Contribution of all
  other capital services     0.2    0.1   -0.1    0.1    0.7    0.2   -0.3

Contribution of
labor composition7           0.3    0.2    0.5    0.2    0.2    0.3    0.1

Multifactor productivity8    0.9    0.7    0.5    1.5    1.4    0.4    0.7

  Contribution of R&D to
  multifactor productivity


Private business1

Labor productivity2          2.1    1.7    1.6    3.0    2.7    1.3    0.6

Contribution of
capital intensity3           0.8    0.7    0.6    1.2    1.0    0.6   -0.2

  Contribution of
  information processing
  equipment4                 0.3    0.3    0.3    0.6    0.3    0.1    0.0

  Contribution of
  research and develop-
  ment5                      0.1    0.1    0.1    0.1    0.1    0.1    0.0

  Contribution of all
  other intellectual    
  property products6         0.2    0.2    0.4    0.4   -0.1    0.1    0.1

  Contribution of all
  other capital services     0.3    0.1   -0.1    0.1    0.7    0.2   -0.3

Contribution of
labor composition7           0.3    0.2    0.5    0.2    0.2    0.3    0.1

Multifactor productivity8    1.0    0.8    0.5    1.6    1.4    0.4    0.7

1. Excludes government enterprises.
2. Output per hour worked.
3. Capital services per hour multiplied by capital's share of current
   dollar costs.
4. Information processing equipment per hour multiplied by its share of 
   current dollar costs.
5. Research and development per hour multiplied by its share of current
   dollar costs.
6. Software and artistic originals per hour multiplied by their share
   of current dollar costs.
7. Labor composition multiplied by labor's share of current dollar costs.
8. Output per unit of combined labor input and capital services.

Note: Multifactor productivity plus contribution of capital intensity and
labor composition may not sum to output per hour due to independent
rounding.  Contributions of information processing equipment, research and
development, all other intellectual property products, and all other 
capital services may not sum to the contribution of capital intensity
due to independent rounding.

Table C. Multifactor productivity measures in the private nonfarm
business and private business sectors for the 1987-2014 period,
previous and revised

Annual percent change from previous year

          Private Nonfarm Business      Private Business
Year      Previous      Revised         Previous      Revised


1988         1.0          1.2              0.7          1.0
1989         0.1          0.2              0.3          0.4
1990         0.4          0.6              0.7          0.9
1991        -0.8         -0.4             -0.8         -0.5
1992         2.5          3.2              2.8          3.3
1993        -0.1         -0.3             -0.2         -0.4
1994         0.7          0.6              0.7          0.6
1995         0.3         -0.2              0.0         -0.5
1996         1.5          1.6              1.8          1.9
1997         0.7          0.9              0.9          1.2
1998         1.7          1.2              1.6          1.3
1999         1.7          1.9              1.9          2.1
2000         1.5          1.6              1.7          1.7
2001         0.5          0.5              0.6          0.5
2002         2.0          2.1              2.0          2.1
2003         2.3          2.2              2.5          2.4
2004         2.7          2.5              2.8          2.5
2005         1.3          1.5              1.3          1.5
2006         0.3          0.3              0.3          0.3
2007         0.4          0.6              0.3          0.5
2008        -1.3         -1.3             -1.2         -1.2
2009        -0.2         -0.3              0.0         -0.2
2010         2.8          2.9              2.7          2.9
2011         0.0          0.2             -0.1          0.1
2012         0.8          0.8              0.7          0.6
2013         0.9         -0.1              1.1          0.2
2014         0.8          0.7              0.6          0.7

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Last Modified Date: March 24, 2016