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Technical Notes
The comparisons in this release are based on data available to the Bureau of Labor Statistics as of the
beginning of September 2009 from the national statistical offices of the 17 economies compared.
Definitions. Labor productivity is defined as real output per hour worked. Although the labor
productivity measure presented in this release relates output to the hours worked of persons
employed in manufacturing, it does not measure the specific contributions of labor as a single factor
of production. Rather, it reflects the joint effects of many influences, including new technology,
capital investment, capacity utilization, energy use, and managerial skills, as well as the skills and
efforts of the workforce.
Unit labor costs are defined as the cost of labor input required to produce one unit of output. They
are computed as compensation in nominal terms divided by real output. Unit labor costs can also be
computed by dividing hourly compensation by output per hour, that is, by labor productivity.
Methodology. BLS constructs trends of manufacturing labor productivity and unit labor costs from
three basic aggregate measures: output, total labor hours, and total compensation. The hours and
compensation measures, as well as the employment measures, refer to employees (wage and salary
earners) in Belgium and Taiwan. For all other economies, the measures refer to all employed
persons, including employees, self-employed persons, and unpaid family workers.
In general, the measures relate to total manufacturing as defined by the International Standard
Industrial Classification (ISIC). However, the measures for France include parts of mining. Data for the
United States are in accordance with the North American Industry Classification System (NAICS 97),
except compensation data before 1987. Canadian data are in accordance with NAICS 97 starting in
1961.
The data for the most recent years are based on the United Nations System of National Accounts
1993 (SNA 93). For earlier years, data were compiled according to previously used systems.
To obtain historical time series, BLS may link together data series which were compiled according to
different accounting systems by national statistical offices.
Output. For most of the economies, the output measures are real value added in manufacturing,
based on national accounts. However, output for Japan prior to 1970 and for the Netherlands prior to
1960 are indexes of industrial production. The manufacturing value added measures for the United
Kingdom are essentially identical to their indexes of industrial production.
Most economies now estimate manufacturing real output using moving price weights, as
recommended by SNA 93. However, many earlier time periods within the historical real output series
have been estimated using fixed price weights, with the weights updated periodically (for example,
every 5 or 10 years). Taiwan still uses fixed price weights to estimate real output.
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Measures of real output also may differ among economies because of different approaches to
quality adjustments.
For the United States, the output measure for the manufacturing sector is a chain-weighted index of
real gross product originating (deflated value added) produced by the Bureau of Economic Analysis
(BEA) of the U.S. Department of Commerce. For more information on the U.S. measure, see
"Improved Estimates of Gross Product by Industry for 1947-98," Survey of Current Business, June
2000, pp. 24-38 and "Gross Domestic Product by Industry for 1947-86. New Estimates Based on the
North American Industry Classification System," Survey of Current Business, December 2005, pp. 70-
84.
The U.S. manufacturing output series used for international comparisons differs from the
manufacturing output series that BLS publishes as part of its major sector productivity and costs
measures for the United States. The international comparisons program uses a value added output
concept, while the major sector series is on a sectoral output basis. Sectoral output is gross output
less intra-sector sales and transfers. The U.S. major sector productivity and costs measures can be
found at http://www.bls.gov/lpc/home.htm. For information on sectoral output, see "Measurement
of productivity growth in U.S. manufacturing," Monthly Labor Review, July 1995, pp. 13-28.
Value added measures have been used for the international comparisons series because the data
are more readily available from the economies' national accounts, whereas sectoral output would
require a complex estimation procedure. Even though BLS has determined that sectoral output is the
correct concept for U.S. measures of productivity, there are other considerations that may make
value added a better concept for international comparisons of labor productivity, such as differences
among economies in the extent of vertical integration of industries.
Labor Input. For the most recent years, the term "hours" refers to hours worked. For some earlier
years, BLS uses other hours measures.
For the United States, the employment and hours data series beginning with 1987 are taken from the
NAICS-based manufacturing all-employed series published by BLS as part of the major sector
productivity and cost measures. For the period before 1987, these series are linked to NAICS-based,
employees-only data from the Current Employment Statistics (CES) program.
For most other economies, recent years' aggregate hours series are obtained from national statistical
offices, usually from national accounts. However, for some earlier years, BLS calculates the aggregate
hours series using employment figures published with the national accounts, or other
comprehensive employment series, and data on average hours worked.
Compensation (Labor Cost). The compensation measures are from national accounts. Compensation
includes employer expenditures for legally required insurance programs and contractual and private
benefit plans, in addition to all payments made in cash or in kind directly to employees. When data
for the self-employed are not available, total compensation is estimated by assuming the same
average compensation for the self-employed as for employees.
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Labor cost is defined as compensation plus employment taxes minus employment subsidies, i.e. the
cost to employers of using labor. For most economies, labor cost is the same as compensation.
However, for Australia, Canada, France, Singapore, and Sweden, compensation is increased to
account for important taxes on payroll or employment. For the United Kingdom, compensation is
reduced between 1967 and 1991 to account for subsidies.
Data for Germany. German data prior to 1991 pertain to the former West Germany. The data series
are linked in 1991.
Data for Australia. Australian data are published by fiscal years, which run from July 1 through June
30. The Australian Bureau of Statistics provides unpublished calendar-year data for real value added,
employment, and hours worked. For compensation, BLS estimates calendar-year series using two-
year moving averages of the data for fiscal years. Manufacturing compensation data are not available
for years prior to 1990.
Data for Recent Years. The measures for recent years may be estimates based on various current
indicators until national accounts and other preferred statistics become available.
Trade-Weighted Measures. The trade weights used to calculate the relative unit labor cost indexes of
the United States and the other economies are based on the relative dollar value of U.S. trade in
manufactured commodities (exports plus imports) with each economy in 2008. The trade data are
compiled by the U.S. Census Bureau.
The following weights were used for the entire period for which trade-weighted unit labor cost
measures are produced:
Weight Weight
Canada 34.89 Germany 11.32
Japan 14.92 Italy 3.86
Korea 5.95 Netherlands 4.19
Taiwan 4.40 Norway 0.66
Belgium 3.39 Spain 1.61
Denmark 0.69 Sweden 1.32
France 5.21 United Kingdom 7.60
Level Comparisons. The BLS measures are limited to trend comparisons. BLS does not prepare level
comparisons of manufacturing productivity and unit labor costs because of data limitations and
technical problems in comparing the levels of manufacturing output among economies. Each
economy measures manufacturing output in its own currency units. To compare outputs among
economies, a common unit of measure is needed. Market exchange rates are not suitable as a basis
for comparing output levels. What is needed are purchasing power parities, which are the number of
foreign currency units required to buy goods and services equivalent to what can be bought with one
unit of U.S. currency.
Purchasing power parities, for most economies, are available for total gross domestic product (GDP)
from the Organization for Economic Cooperation and Development (OECD). However, these parities
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are derived for expenditures made by consumers, business, and government for goods and services
- not for value added by industry. Therefore, they do not provide purchasing power parities by
industry. The parities developed for total GDP are not suitable for each component industry, such as
manufacturing.
European exchange rates. On Jan. 1, 1999, 11 European countries joined the European Monetary
Union (EMU). In subsequent years several other European countries became EMU members. The
euro, the official currency of the EMU, was established at fixed conversion rates to the previous
national currencies of EMU members. Data on manufacturing value added and labor compensation
for euro-area countries are now reported in euros.
In order to maintain historical continuity of data series, data for euro-area countries for years before
1999 have been converted to euros by applying the fixed euro/national currency conversion rates.
For countries and years where output, compensation, and exchange rates are converted from
national currency units into euros, the following fixed conversion rates are used:
1 euro equals: 40.3399 Belgian francs 1936.27 Italian lire
6.55957 French francs 2.20371 Netherlands guilders
1.95583 German marks 166.386 Spanish pesetas
The currency exchange rates cited in this publication are annual averages of daily buying rates in New
York City.
