TECHNICAL NOTES
Capital Services: Capital services are the services derived from the stock of
physical assets and software. There are 86 asset types for fixed business
equipment and software, structures, inventories, and land. The aggregate
capital services measures are obtained by Tornqvist aggregation of the capital
stocks for each asset type within each of the eighteen manufacturing NAICS
industry groupings using estimated rental prices for each asset type. Each
rental price reflects the nominal rate of return to all assets within the
industry and rates of economic depreciation and revaluation for the specific
asset; rental prices are adjusted for the effects of taxes. Data on
investments in physical assets and software are obtained from Bureau of
Economic Analysis (BEA). Nonfarm industry detail for land is based on IRS
book value data.
Labor Hours: The construction of the hours measures follows the methodology
described in USDL 11-0435, Multifactor Productivity Trends, 2009,
http://www.bls.gov/news.release/pdf/prod3.pdf. Hours in manufacturing are
directly aggregated and do not include the effects of labor composition.
Hours data for the manufacturing multifactor productivity measures include
hours for all persons working in the manufacturing sector – wage and salary
workers, the self-employed and unpaid family workers. The primary source
of hours data is the BLS Current Employment Statistics (CES) survey. Hours
paid of production workers are also obtained primarily from the CES survey.
The hours of these employees are then converted to an at-work basis by using
information from the Employment Cost Index (ECI) of the National Compensation
Survey (NCS) and the BLS Hours at Work Survey. Hours at work for nonproduction
workers are derived using data from the Current Population Survey (CPS), the
CES, and the NCS. The hours at work of proprietors are derived from the CPS.
Hours at work data are based on underlying hours data published in the February
3, 2011, USDL-11-0128, Productivity and Costs,
http://www.bls.gov/news.release/archives/prod2_02032011.pdf. Therefore, the
data do not reflect the benchmark revisions to the CES and other revisions to
hours released on February 4, 2011.
Intermediate Inputs: In manufacturing, intermediate inputs consist of energy,
materials, and purchased business services, and represent a large share of
production costs. Research has shown that substitution among inputs, including
intermediate inputs, affects productivity change. Therefore, it is important
to account for intermediate inputs in productivity measures at the level of
manufacturing. In contrast, the more aggregate productivity measures compare
"value-added" output with two classes of inputs, capital and labor. Because
of these differences in concepts and methodology, productivity change in
manufacturing cannot be directly compared with changes in private business or
private nonfarm business.
Data on intermediate inputs are obtained from BEA based on BEA annual
input-output tables. Tornqvist indexes of each of these three input classes
are derived at the 3-digit NAICS level and then aggregated to total
manufacturing. Materials inputs are adjusted to exclude transactions between
establishments within the same sector.
Combined Inputs: The five input indexes (capital services, hours, energy,
materials, and purchased business services) are combined using Tornqvist
aggregation, employing weights that represent each component's share of total
costs. Total costs are defined as the value of manufacturing sectoral output.
Capital Intensity: Capital intensity is the ratio of capital to hours worked
in the production process. The higher the capital to hours ratio, the more
capital intensive the production process is. Intermediate input intensities
are also estimated and interpreted in a similar manner to capital intensity.
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 the
capital intensity ratio 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.
Sectoral Output: The output concept used for multifactor productivity in
manufacturing is “sectoral output”. Sectoral output equals gross output
(sales, receipts, and other operating income, plus commodity taxes plus
changes in inventories), excluding transactions between establishments within
the same sector. In contrast, the output concept used for private business and
nonfarm business is “real value added”. Real value added output in private
business equals gross domestic product in the economy less general government,
government enterprises, private households (including the rental value of
owner-occupied real estate), and non-profit institutions. Real value added
output excludes intermediate transactions between businesses.
The output index for manufacturing is computed using a chained superlative
index (Tornqvist) of three-digit NAICS industry outputs. Industry output is
measured as sectoral output, the total value of goods and services leaving the
industry. Wherever possible, the indexes of industry output are calculated with
a Tornqvist formula. This formula aggregates the growth rates of the various
industry outputs between two periods, using their relative shares in industry
value of production averaged over the two periods as weights. Industry output
measures for manufacturing industries are constructed using data from the
economic censuses and annual surveys of the Bureau of the Census, U.S.
Department of Commerce, together with information on price changes, primarily
from BLS.
Multifactor Productivity: The manufacturing multifactor productivity measures
describe the relationship between output in real terms and the inputs involved
in its production. Manufacturing multifactor productivity measures exclude
intermediate inputs between manufacturing establishments from both output and
inputs. They do not measure the specific contributions of labor, capital, or
intermediate inputs. Rather, they are designed to measure the joint influences
on economic growth of technological change, efficiency improvements, returns
to scale, reallocation of resources due to shifts in factor inputs across
industries, and other factors. The multifactor productivity indexes are
derived by dividing an output index by an index of the combined inputs of
labor, capital services, energy, non-energy materials, and purchased business
services.
Other information: Comprehensive tables containing more detailed data than
that which is published in this press release are available upon request at
202-691-5606 or at http://www.bls.gov/mfp/mprdload.htm. More detailed
information on methods, limitations, and data sources of capital and labor are
provided in BLS Bulletin 2178 (September 1983), Trends in Multifactor
Productivity, 1948-81 and on the BLS Multifactor Productivity website under
the title “Technical Information About the BLS Multifactor Productivity
Measures”for Major Sectors and 18 NAICS 3-digit Manufacturing Industries at
http://www.bls.gov/mfp/mprtech.pdf. Methods for measuring manufacturing
multifactor productivity are discussed in "Measurement of productivity growth
in U.S. manufacturing” in the July 1995 issue of the Monthly Labor Review.
See http://www.bls.gov/mfp/mprgul95.pdf.
