PRODUCTIVITY QUESTIONS

What is productivity?

Productivity is a ratio relating output to one or more of the inputs associated with producing that output. An increase in output per unit of input is an increase in productivity. The most common productivity measure is labor productivity, which relates output to employment or labor hours. BLS has been publishing international comparisons of manufacturing labor productivity, as measured by output (value added) per hour worked, for many years.

There are multifactor productivity measures as well, where output is related to two or more inputs. BLS has produced a three-country comparison of manufacturing multifactor productivity, as measured by output (value added) per unit of combined labor and capital inputs. (See “Manufacturing Multifactor Productivity in Three Countries,” PDF (2,123K) by Wolodar Lysko, Monthly Labor Review, July 1995, pp. 39-55.) A more inclusive productivity measure, used by BLS to compare component manufacturing industries within the United States, relates output, measured as gross output, to combined capital, labor, energy, material, and business services inputs (collectively identified by the acronym KLEMS).

What are unit labor costs?

Unit labor costs can be computed by dividing employer labor costs (payments made directly to workers plus employer payments into funds for the benefit of workers) by real value added output. Unit labor costs can also be computed by dividing hourly labor costs by output per hour. BLS publishes international comparisons of manufacturing unit labor costs along with its comparative labor productivity measures. The comparative unit labor cost measures are published in both national currency terms and in U.S. dollar terms. Comparative changes in unit labor costs in U.S. dollars show relative changes in competitiveness resulting from relative changes in currency exchange rates as well as relative changes in own-currency-based unit labor costs.

Do you have productivity data for specific industries in manufacturing?

BLS does not currently have comparative measures of productivity for individual manufacturing industries.

What are trade-weighted measures of unit labor costs?

Because the economies covered by the BLS measures differ greatly in their relative importance to U.S. trade in manufactured products, BLS constructs trade-weighted indexes of unit labor costs. Each country is assigned a weight based upon its importance to U.S. trade. Japan and Canada, for instance, are given the highest weights, while the weights for Denmark and Norway are very small. “Competitors' indexes” of unit labor costs are then constructed by taking trade-weighted geometric averages of the indexes for the competitor economies. Relative indexes are also constructed by taking ratios of the U.S. indexes of unit labor costs to the competitors' indexes. These summary measures are useful for analyzing trends in U.S. competitiveness relative to the other economies.

Why do you use purchasing power parities (PPPs) instead of market exchange rates for comparing levels of gross domestic product (GDP) per capita and per employed person?

Purchasing Power Parities (PPPs) reflect the relative purchasing power of each currency, whereas market exchange rates seldom do. At best, even freely fluctuating market exchange rates represent only the relative values of currencies for goods and services that are traded internationally, not the relative value of total domestic output, which also consists of goods, and particularly services, that are not traded or which are isolated from the effects of foreign trade. Market exchange rates are also affected by influences entirely unrelated to the relative values of currencies for purchases of goods or services. These influences include currency traders' views of the stability of various countries' governments, relative interest rates among countries, and other incentives for holding financial assets in one country compared to another.

What are purchasing power parities (PPPs)?

Purchasing Power Parities (PPPs) are conversion rates that represent the number of currency units required to purchase goods and services in a given country equivalent to what could be bought with one unit of currency in the base country. For example, if the United States is the base country, then the PPP for Japan would be the amount of yen required to buy the same goods and services in Japan that you could buy for one dollar in the United States.

PPPs are interspatial price indexes constructed for the purpose of comparing prices and volumes across countries. They are analogous to intertemporal price indexes used within a country to compare changes in prices and volumes over time, such as a consumer price index. Just as a consumer price index measures the cost of a representative basket of goods and services over time, PPPs can be used to measure the cost of a representative basket of goods and services across countries. The procedures are essentially the same: to price a representative set of goods and services and then to average the price ratios to arrive at an overall index.

Do you have international comparisons of manufacturing productivity levels?

The BLS comparative productivity measures for manufacturing are limited to trend comparisons (percent changes in productivity over time). BLS does not make any comparisons of manufacturing productivity levels. Therefore, using the BLS measures, it is only possible to say whether U.S. productivity is growing at a faster or slower rate than productivity in other countries.

Comparisons of productivity levels between countries depend on comparable measures of output and labor input for each country. Accurate conversion factors are needed for converting each country's output, measured in own-country currency terms, into a common unit of measurement, such as the U.S. dollar. Purchasing power parities (PPPs) are such conversion factors. PPPs are available for total gross domestic product (GDP) from the United Nations' International Comparisons Project (UNICP). They are derived from the expenditure side of the national accounts (consumer, business, and government final expenditures for goods and services) and not for gross product originating by industry, or value-added. Therefore, PPPs by industry are not available from this source.

Some analysts have constructed “proxy PPPs” for manufacturing using selected expenditure items from the UNICP. However, since the prices used are based on consumer, business, and government final expenditures, they have a number of shortcomings: they are based on final sales values rather than industry value added or gross output; they include indirect taxes, distribution margins, and transportation costs; they include the prices of imports and exclude the prices of exports; and the prices of intermediate products, such as steel, paper, and cement, are represented only marginally and indirectly as inputs to the final products included among the selected expenditures.

A different approach has been used by researchers at the International Comparisons of Output and Productivity project at the University of Groningen in the Netherlands. They develop unit value ratios or UVRs based on ratios of producers' sales values per unit of output for matched products from country censuses of manufactures. This procedure also has shortcomings, primarily because only a portion of manufactured products can be matched and the matched products may not be adequately representative. For an article based on this approach, see “Manufacturing Prices, Productivity, and Labor Costs in Five Economies,” PDF (1091K) by Bart van Ark, Monthly Labor Review, July 1995, pp. 56-72.

What is the difference between the hourly compensation reported in your news release “International Comparisons of Hourly Compensation Costs in Manufacturing” (www.bls.gov/news.release/ichcc.toc.htm) and the hourly compensation reported in your news release “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends” (www.bls.gov/news.release/pdf/prod4.pdf)?

See this QA in the next Hourly Compensation section.

HOURLY COMPENSATION QUESTIONS

What does hourly compensation costs mean?

Hourly compensation costs are employer labor costs. Hourly compensation is defined as (1) all payments made directly to workers — pay for time worked (basic time and piece rates plus overtime premiums, shift differentials, other premiums and bonuses paid regularly each pay period, and cost-of-living adjustments), pay for time not worked (such as for vacations and holidays), seasonal or irregular bonuses and other special payments, selected social allowances, and the cost of payments in kind — before payroll deductions of any kind, and (2) employer expenditures for legally required insurance programs and contractual and private benefit plans (such as retirement plans, health insurance, unemployment insurance, and family allowances). In addition, for some countries, compensation is adjusted for other taxes on payrolls or employment (or reduced to reflect subsidies), even if they do not finance programs that directly benefit workers, because such taxes are regarded as labor costs.

The BLS definition of hourly compensation costs is not the same as the International Labor Office (ILO) definition of total labor costs. Hourly compensation costs do not include all items of labor costs. The costs of recruitment, employee training, and plant facilities and services — such as cafeterias and medical clinics — are not included because data are not available for most countries. The labor costs not included account for no more than 4 percent of total labor costs in any country for which the data are available.

How does hourly compensation differ from hourly wages or earnings?

Wages or earnings do not include employer payments into funds for the benefit of workers, which in many countries account for a large proportion of total compensation. In addition, some items of direct pay, such as year-end bonuses, may not be included in country definitions of wages or earnings. Consequently, comparisons based on the more readily available average earnings statistics published by many countries are only partial measures of employer compensation costs and may not be comparable because of country differences in the definition of average earnings.

Can the BLS hourly compensation cost measures be used to compare worker incomes?

No. The hourly compensation figures provide comparative measures of employer labor costs; they do not provide intercountry comparisons of the purchasing power of worker incomes. Prices of goods and services vary greatly among countries, and the commercial market exchange rates used to compare employer labor costs do not reliably indicate relative difference in prices. Purchasing power parities — that is, the number of foreign currency units required to buy goods and services equivalent to what can be purchased with one unit of U.S or other base-country currency — must be used for meaningful international comparisons of the relative purchasing power of worker incomes.

Total compensation converted to U.S. dollars at purchasing power parities would provide one measure for comparing relative real levels of labor income. It should be noted, however, that total compensation includes employer payments to funds for the benefit of workers in addition to payments made directly to workers. Payments into these funds provide either deferred income (e.g., payments to retirement funds), a type of insurance (e.g., payments to unemployment or health benefit funds), or current social benefits (e.g., family allowances), and the relationship between employer payments and current or future worker benefits is indirect. On the other hand, excluding these payments would understate the total value of income derived from work because they substitute for worker savings or self-insurance to cover retirement, medical costs, etc.

Total compensation, because it takes account of employer payments into funds for the benefit of workers, is a broader income concept than either total direct earnings or direct spendable earnings. However, compensation costs only include worker benefits financed by taxes on payrolls or employment — they do not include worker benefits financed out of general revenues, such as the British national health system and family allowances in Germany. An even broader concept would take account of all social benefits available to workers, including those financed out of general revenues as well as those financed through employment or payroll taxes.

What is the difference between the hourly compensation reported in your news release “International Comparisons of Hourly Compensation Costs in Manufacturing” (www.bls.gov/news.release/ichcc.toc.htm) and the hourly compensation reported in your news release “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends” (www.bls.gov/news.release/pdf/prod4.pdf)?

The Division of International Labor Comparisons (DILC) of BLS has two programs that produce hourly compensation cost series. The series are produced for different purposes, and the sources, calculation methods, and coverage of each differ.

Compensation costs in “International Comparisons of Hourly Compensation Costs in Manufacturing” relate to the cost to employers to compensate manufacturing workers, including both wages and other labor costs. Level data, annual percentage changes, and indexes are available for over 30 economies. This is the appropriate series to use if one wants to compare the level of employer labor costs in the United States with the levels of labor costs in other countries.

Hourly compensation published in “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends” is an intermediate calculation factor used to derive unit labor costs, which is a central indicator of international competitiveness. (Unit Labor Costs = total compensation costs / output) Data are available as indexes and annual growth rates for 16 economies. Hourly compensation level data are not produced for this series. This series is appropriate for users who are interested in the relationship between manufacturing hourly compensation and productivity.

Data in “International Comparisons of Hourly Compensation Costs in Manufacturing” are derived primarily from establishment surveys and labor cost surveys. Data for component industries as well as for all manufacturing are produced. In contrast, data in “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends” are obtained from aggregated data in national accounts and are prepared for all manufacturing only.

Note that due to the differences in sources, methods, and coverage the two indicators can show different trends. For more details, please consult the technical notes in both reports for the sources on which the reports are based, and on the methods by which the published comparisons were estimated.

LABOR FORCE AND UNEMPLOYMENT QUESTIONS

What differences exist between BLS definitions and foreign country definitions of the labor force?

One of the differences between U.S. and foreign country definitions is with regard to age limits. The lower age limit of the working-age population according to U.S. concepts is 16 while most foreign countries collect data on the working-age population ages 15 and older. In addition, some countries may have an upper age limit. Another difference is that foreign countries sometimes include the career military or national defense force in the labor force, whereas U.S. data are based on the civilian labor force. There is also a difference with regard to the treatment of unpaid family workers. Whereas most foreign countries count all unpaid family workers as employed, the U.S. only includes them if they worked at least 15 hours.

Whereas BLS uses the term “labor force,” other countries may use the term “economically active population.” For persons “not in the labor force,” other countries may use the term “economically inactive population.” The terms for employment and unemployment are generally the same, although the classification of persons counted as employed, unemployed, or not in the labor force may differ. Some types of workers that are categorized differently in other countries include new entrants to the workforce, persons on layoff or working part time, and students with part-time work. To compare across countries, these definitional differences must be taken into account. For details on BLS adjustments made to foreign country data for greater comparability, see the technical notes of the report International Comparisons of Annual Labor Force Statistics, 10 Countries.

The U.S. concepts used as the basis for adjustments are described more fully by the Current Population Survey program of the Bureau of Labor Statistics (BLS).

Reference:

International Comparisons of Annual Labor Force Statistics, 10 Countries, Bureau of Labor Statistics, Office of Productivity and Technology, updated semi-annually.

Can I measure job growth with your data?

No, the BLS comparative employment data cover employment rather than jobs. Employment and jobs are different concepts. In a tally of employment (based on a labor force survey), persons who hold more than one job are counted only once. In a tally of jobs (based on an establishment survey), persons who work in more than one establishment are counted each time their names appear on payrolls. For further information on the differences between the U.S. labor force (or household) and establishment surveys, see www.bls.gov/web/empsit/ces_cps_trends.htm.

Across countries, labor force surveys provide greater comparability of labor force statistics than do establishment surveys. However, using employment data from a labor force survey to measure change over time would represent employment growth rather than job growth.

How do other countries measure unemployment?

Use of a labor force survey to count the unemployed, a longstanding practice in the United States, is common in most foreign countries, including Canada, Mexico, Australia, and Japan. Countries in the European Union are now required to use a labor force survey to count the unemployed, although some had previously depended on administrative sources such as employment office registrations or unemployment insurance records to measure unemployment. Countries may continue to also produce unemployment statistics from administrative sources. Note that administrative statistics from employment office registrations or unemployment insurance records relate only to persons who have registered or applied for benefits and are not an accurate measure of total unemployment because only a subset of workers is covered. Labor force surveys provide a more complete measure of unemployment because the data are based on a representative sample of the population. However, concepts and definitions of unemployment in labor force surveys may differ from country to country, and BLS makes adjustments to provide foreign data that are more comparable with U.S. concepts and definitions.

On a monthly basis, BLS publishes a series of unemployment rates based on labor force surveys, adjusted to U.S. concepts, for nine foreign nations: Australia, Canada, Japan, France, Germany, Italy, the Netherlands, Sweden, and the United Kingdom (https://www.bls.gov/fls/archived_FTP/flsjec.txt).

Reference:

“International Unemployment Rates: How Comparable are They?” PDF (97K) by Constance Sorrentino, Monthly Labor Review, June 2000, pp. 3-20.

How does the U.S. unemployment rate compare with other industrial countries?

In the 1970s, unemployment rates were high in the United States compared to other industrial countries. In the next two decades, however, the United States improved its relative position. In contrast, most European countries experienced an increase in their unemployment rates during the 1980s that persisted into the 1990s.

In 2006, the U.S. unemployment rate of 4.6 percent was well below the rates in Australia, Canada, France, Germany, Italy, Sweden, and the United Kingdom. In contrast, the U.S. rate was higher than Japan’s rate of 4.2 percent and the Netherlands’s rate of 4.4 percent.

Reference:

Unemployment Rates in 10 Countries, Civilian Labor Force Basis, Approximating U.S. Concepts, Seasonally Adjusted. Bureau of Labor Statistics, Office of Productivity and Technology, updated monthly.

International Comparisons of Annual Labor Force Statistics, 10 Countries, Bureau of Labor Statistics, Office of Productivity and Technology, updated semi-annually.

Why is Japanese unemployment so low?

Japan has been able to maintain relatively low unemployment rates because large numbers of women who are temporary or casual workers withdraw from the labor force when they lose their jobs, rather than becoming unemployed — that is, they stop working and do not look for another job. Temporary workers, both male and female, represent an increasing share of Japanese employment. Such workers generally bear the brunt of labor market adjustments in Japan. In this way, Japanese employers have flexibility in their work forces during economic downturns, enabling full-time workers with permanent employment contracts — predominantly men in larger Japanese enterprises — to keep their jobs.

The conventional unemployment rate misses a great deal of labor underutilization in Japan, namely workers on reduced hours for economic reasons and discouraged workers (those who want a job, but are not actively seeking work because they believe their search will be futile). A more broadly defined rate which takes these other elements of underutilization into account increases the Japanese rate beyond that of the U.S. rate. (See referenced articles.) Cross-country comparisons on the broader definitions of labor utilization are not available after 1993, however.

References:

“Utilization of labor resources in Japan and the United States,” PDF (108K) by Toshihiko Yamagami, Monthly Labor Review, April 2002, pp. 25-43.

“International Unemployment Indicators, 1983-1993,” PDF (2,316K) by Constance Sorrentino, Monthly Labor Review, August 1995, pp. 31-50.

“International Comparisons of Unemployment Indicators,” PDF (2,674K) by Constance Sorrentino, Monthly Labor Review, March 1993, pp. 3-24.

Why is the unemployment rate low in many developing countries?

Many developing countries do not have social protection schemes such as unemployment insurance and welfare benefits, so people simply cannot afford to be unemployed. In these countries, a low unemployment rate may not be a sign of a healthy labor market; the low rate belies the lack of job security and poor work conditions many people may face, particularly if workers are in the often large informal economy.

References:

“Employment and Unemployment in Mexico in the 1990s,” PDF (142K) by Gary Martin, Monthly Labor Review, November 2000, pp. 3-18.

“Employment and Unemployment in Mexico's Labor Force,” PDF (2,012K) by Susan Fleck and Constance Sorrentino, Monthly Labor Review, November 1994, pp. 3-31.

Are there other harmonized unemployment series?

Yes, several other organizations provide harmonized unemployment rates, although the number of adjustments made by these organizations is more limited than those made by BLS and the basis of their adjustments is not the U.S. concepts but the ILO guidelines, with some variations in interpretation.

Comparisons of unemployment rates across countries “approximating U.S. concepts” were first made on a regular basis by BLS in the early 1960s. During the late 1970s, the Organization for Economic Cooperation and Development (OECD) began publishing Standardized Unemployment Rates (SURs) for member countries. In the mid-1980s, the Statistical Office of the European Communities (Eurostat) began publishing monthly harmonized unemployment rates for European Union member countries. In the late 1980s, the International Labor Office (ILO) initiated a program of annual ILO-Comparable Unemployment Rates.

Standardized rates published by BLS compared with those compiled by these three organizations used to be quite different for some countries; in recent years, however, the rates have converged. For more information on the differences between the series, see the reference article.

Reference:

“International Unemployment Rates: How Comparable are They?” PDF (97K) by Constance Sorrentino, Monthly Labor Review, June 2000, pp. 3-20.

CONSUMER PRICE INDEX QUESTIONS

Can the CPIs for individual countries be used to compare price levels with other countries?

No. An individual country index measures how much prices have changed over a specific period in that particular country; it does not indicate whether prices are higher or lower in that country relative to another.

Does the CPI measure the cost of living?

The CPI frequently is called a cost-of-living index, but it differs from a complete cost-of-living measure. Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing, that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this role to also take into account changes in other governmental or environmental factors that affect consumers' well-being. For more information, see www.bls.gov//cpi/questions-and-answers.htm#Question_9.

How can I find the cost of living in a foreign country relative to the cost of living in the United States?

The U. S. State Department publishes indexes of living costs in selected foreign cities compared to Washington, DC. For a comprehensive table of such indexes by country, see the quarterly report for January of the most recent year at aoprals.state.gov/content.asp?content_id=186&menu_id=81#2008. There are important limitations to the data. For example, the indexes should not be used to compare living costs of Americans in the United States with the living costs of foreign nationals living in their own country, since the indexes reflect only the expenditure pattern and living costs of American families.

What is the HICP?

The Harmonized Indexes of Consumer Prices (HICP) is an internationally comparable measure of consumer price inflation originally developed by the European Union for its member countries. For more information, see www.bls.gov/opub/mlr/2007/02/ressum.pdf.

How does the U.S. HICP differ from the U.S. CPI?

The U.S. experimental HICP series differs from the U.S. Consumer Price Index (CPI) in two main ways. It refers to the entire national population, which includes the rural population, and it excludes owner-occupied housing. For more information, see www.bls.gov/opub/mlr/2006/05/art3full.pdf.

Last Modified Date: April 13, 2011