Total Factor Productivity News Release

For release 10:00 a.m.(ET) Thursday, March 23, 2023 USDL-23-0540
Technical information:(202) 691-5606 • Productivity@bls.gov 
                                     • www.bls.gov/productivity
Media contact:	      (202) 691-5902 • PressOffice@bls.gov
	
TOTAL FACTOR PRODUCTIVITY – 2022

Total factor productivity (TFP) in the private nonfarm business sector 
decreased 1.2 percent in 2022, the U.S. Bureau of Labor Statistics 
reported today. (See table A.) The 2022 decline in TFP reflects
a 2.3-percent increase in output and a 3.6-percent increase in the combined
inputs of capital and labor. Capital input grew by 2.9 percent and labor 
input–which is the combined effect of hours worked and labor 
composition–increased by 4.0 percent. This is the first time since 1993 that
both capital and labor growth have outpaced output growth, leading to the 
decline in total factor productivity. Besides the COVID-19 pandemic year of
2020, this is the largest decline in productivity since 1982. 

Total factor productivity is calculated by dividing an index of real output
by an index of combined units of labor input and capital input. Total factor
productivity annual measures differ from BLS quarterly labor productivity 
(output per hour worked) measures because TFP includes the influences of 
capital input and shifts in the composition of workers. Measures for the
most recent year of this release are preliminary estimates. See the Technical
Notes for additional information.

------------------------------------------------------------------------------
|	Methodology Change for Labor Composition Data                        |
|                                                                            |
| Starting with data released on November 18, 2022, the BLS Productivity     |
| program incorporated new methodology that uses a combination of the Census |
| American Community Survey (ACS), BLS Current Population Survey (CPS), and  |
| the CPS Annual Demographic Supplement to estimate labor composition for    |
| all NAICS industries and Major Sectors.                                    |
------------------------------------------------------------------------------

Private business sector total factor productivity also decreased 1.2 percent
in 2022, as output increased 2.2 percent and combined inputs increased 3.5 
percent. (See table A.) 

Total Factor Productivity Trends

The 1.2-percent decline in TFP in private nonfarm business in 2022 resulted
from combined inputs growth outpacing the growth of output. The 2.3-percent
growth of output in 2022 represents a stabilization of private nonfarm 
business output after the COVID-19 pandemic, as this growth is in line with
the previous business cycle (2007-19) growth of 2.0 percent. 

Combined inputs continued its recovery from the 2020 recession with 3.8 
percent growth in 2021 and 3.6 percent growth in 2022. However, due to the
large decline in this measure in 2020, combined inputs growth during the 
current business cycle (2019-22) is now in line with the 2007-19 growth.

Productivity growth is often viewed as a long run measure, especially when 
an economic shock like the COVID-19 pandemic happens. While total factor 
productivity growth has been volatile the last 3 years, 2019-22 shows similar
growth to the previous business cycle. 

Combined input growth is made up of growth in three components: capital input,
hours worked, and labor composition. The index of capital input has continued
its pre-pandemic trend of positive growth and is now 8.0-percent higher in 
2022 than in 2019. Hours worked grew 4.0 percent in 2022 and has now fully 
recovered from the historic decline in 2020, with the 2022 index 1.4-percent
higher than in 2019. The index of labor composition experienced historically
high growth in 2020 and has remained near this level over the last 2 years.

Labor Productivity Trends

Labor productivity growth is the approximate sum of three components: total
factor productivity growth, the contribution of capital intensity, and the 
contribution of shifts in the composition of labor. In 2022, private nonfarm
business labor productivity decreased 1.7 percent, the largest decline since
the series began in 1948. (See table B.)

The 2022 private nonfarm business sector decline in labor productivity was 
a result of the 1.2-percent decline in total factor productivity, and a 
0.4-percent decline in the contribution of capital intensity to labor 
productivity growth. Capital intensity is the ratio of capital input growth
to labor hours growth. The 2022 decline in capital intensity was driven by
the increase in hours worked of 4.0 percent relative to the slower capital
input growth of 2.9 percent. (See tables A and B.)

The contribution of labor composition to labor productivity for private 
nonfarm business was unchanged in 2022. Labor composition estimates the 
effect of shifts in the age, education, and gender composition of the 
workforce on hours worked. The historic contribution of labor composition 
to labor productivity growth in 2020 was followed by a decline in 2021, 
the first time this measure declined since 1977. Over the 2019-22 business
cycle, the contribution to labor productivity growth from labor composition 
was 0.4 percent. 

Detailed Capital Input Trends 2021

Capital input in the private nonfarm business sector increased at an average
annual rate of 2.3 percent in 2021, the latest year of available detailed 
capital data. The 2021 capital input growth declined 0.3 percentage point 
(see table C) from the 2020 annual rate of 2.6 percent and continues the 
deceleration of capital growth from the 2019 annual rate of 3.2 percent. 
This is the first 2-year consecutive decline in capital growth since 
the Great Recession of 2007-09.

Capital input is made up of different types of capital assets, including 
equipment, structures, and intellectual property products. In the 2000-07 
business cycle, equipment and intellectual property products, which consist
of software, research and development, and artistic originals assets, 
accounted for 2.9 percentage points of the private nonfarm business capital
input growth of 3.5 percent. However, in the following business cycle of 
2007-19, the contribution of equipment decreased by almost half, leading to
capital input growth of only 2.4 percent.

The decline in the contribution of equipment continued into the current 
2019-21 business cycle as equipment now accounts for 0.5 percentage point 
of capital input growth. However, capital input growth was unchanged at 
the previous rate of 2.4 percent due to the increased contribution of
intellectual property products. Intellectual property products increased 
from a 1.0 percentage point contribution in 2007-19 to a 1.5 percentage point
contribution in 2019-21, and now accounts for over half of private nonfarm
business capital input growth. 

Technical Notes

Capital Input 

Capital input is the services derived from the stock of physical assets and
intellectual property assets. There are 90 asset types for fixed business 
equipment, structures, inventories, land, and intellectual property products.
Data on investment for fixed assets are obtained from the Bureau of Economic
Analysis (BEA). Data on inventories are estimated using information from BEA
and the Internal Revenue Service (IRS) Corporation Income Returns. Data for
land in the farm sector are obtained from the U.S. Department of Agriculture
(USDA). Nonfarm industry detail for land is based on IRS book value data. 
Current-dollar value-added data, obtained from BEA, are used in estimating 
capital rental prices.

Additional detail on information processing equipment and intellectual 
property products are available in table C. Information processing equipment
is composed of three broad classes of assets: computers and related equipment,
communications equipment, and other information processing equipment. 
Computers and related equipment include mainframe computers, personal 
computers, printers, terminals, tape drives, storage devices, and integrated
systems. Communications equipment is not further differentiated. Other 
information processing equipment includes medical equipment and related 
instruments, electromedical instruments, nonmedical instruments, photocopying
and related equipment, and office and accounting machinery. Intellectual 
property products are composed of three broad classes of assets: software, 
research and development, and artistic originals. Software is comprised of 
pre-packaged and custom. Research and development is creative work undertaken
to increase the stock of knowledge for the purpose of discovering or 
developing new products or improving existing ones. Research and Development
also includes own-account R&D for software which had previously been 
classified in software. Artistic originals include theatrical movies, 
long-lived television programs, books, music, and other forms of 
entertainment. Structures include nonresidential structures and residential
capital that are rented out by profit-making firms or persons.

Financial assets are excluded from capital input measures, as are 
owner-occupied residential structures. The aggregate capital input measures
are obtained by Tornqvist aggregation of the capital stocks for each asset 
type within each of 61 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. Current-dollar capital costs can be defined as each asset’s rental
price multiplied by its constant-dollar stock, adjusting for capital 
composition effects. 

Capital input measures constructed for the most recent year are preliminary 
and are based on less detail than the rest of the series. These measures 
consist of 6 asset types as opposed to the 90 asset types for fixed business
equipment, structures, inventories, land, and intellectual property products
included in estimates for all previous years. The assets included in the most 
recent year are structures, fixed business equipment, intellectual property
products, inventories, rental residences, and land. Investments, depreciation,
and capital income are estimated for each of these six aggregates. Capital 
input is calculated by a chained superlative Tornqvist index combining stocks
of the six asset categories, weighted by capital income shares. See the June
2005 Monthly Labor Review article, “Preliminary estimates of multifactor 
productivity growth” located at www.bls.gov/opub/mlr/2005/06/art3full.pdf. 

Labor Input

Labor input in private business and private nonfarm business is obtained by
a chained superlative Tornqvist aggregation of the hours worked, classified
by age, education, and gender with weights determined by each group’s share 
of the total wage bill. Hours worked data for the measures this news release
include hours worked for all persons working in the 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) program, which 
provides monthly survey data on the number of jobs held by and hours paid to
wage and salary workers in nonfarm establishments, counting a person who is
employed by two or more establishments at each place of employment. Hours of
paid time off are excluded from hours paid using data from the National 
Compensation Survey (NCS) for 1996 forward and data from the BLS Hours at 
Work survey, conducted for this purpose, prior to 1990. Between 1990 and 1995,
hours of paid time off are excluded using a combination of NCS and Hours at
Work survey data. Off-the-clock hours are added, yielding hours worked, using
data from the Current Population Survey (CPS). To estimate the hours of farm 
labor, nonfarm proprietors, and nonfarm unpaid family workers the CPS data are
used. The hours worked of proprietors, unpaid family workers, and farm 
employees are derived from the CPS. Hours worked data reflect estimates in 
the March 2, 2023 “Productivity and Costs” news release 
(www.bls.gov/news.release/archives/prod2_03022023.pdf) and a new methodology
for estimating hours worked. More information on the methodology change can
be found at www.bls.gov/productivity/technical-notes/labor-productivity-hours
-worked-method-using-ces-all-employee-hours-nov-2022.htm.


The estimates of 2022 hours worked for the private nonfarm business and 
private business sectors are extrapolated from the hours worked reported in 
the nonfarm business and business sectors, respectively, in the March 2, 2023
“Productivity and Costs” news release 
(www.bls.gov/news.release/archives/prod2_03022023.pdf). The growth rate of 
labor composition is defined as the difference between the growth rate of 
weighted labor input and the growth rate of the hours of all persons. The
index of hours worked of all persons including employees, proprietors, and
unpaid family workers, classified by age, education, and gender are 
weighted together using median wages to compute the labor composition 
estimates reflecting the different skillset of the work force. These cell 
estimates are smoothed using a three-year moving average to address missing 
observations and reduce volatility.

Combined Inputs

Labor input and capital input are combined using chained superlative Tornqvist
aggregation, applying weights that represent each component's average share 
of total costs. The chained superlative Tornqvist index uses changing weights;
the share in each year is averaged with the preceding year's share. Total 
costs are defined as the value of output less a portion of taxes on production
and imports. Most taxes on production and imports, such as excise taxes, are
excluded from costs; however, property and motor vehicle taxes remain in total
costs.

Capital Intensity

Capital intensity is the ratio of capital input to hours worked in the 
production process. The higher the capital to hours ratio, the more capital
intensive the production process becomes. 

In a production process, profit-maximizing/cost-minimizing firms adjust the 
factor proportions of capital and labor when the price of one factor is less
than the other factor; there is 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 input. 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 www.bls.gov/productivity/tables.

Value-Added Output

Private business sector output is a chain-type, current-weighted index 
constructed after excluding from gross domestic product (GDP) the following
outputs: general government, nonprofit institutions, private households 
(including owner-occupied housing), and government enterprises. This release 
presents data for the private business and private nonfarm business sectors.
Additionally, the private nonfarm business sector excludes farms from the 
private business sector but includes agricultural services. Total factor 
productivity measures exclude government enterprises, while the BLS quarterly
Productivity and Costs series include them. 

The output measures are based on the National Income and Product Accounts 
(NIPA) data released by BEA on February 23, 2023. The estimates of 2022 
output for the private nonfarm business and private business sectors are 
extrapolated from the output reported in the nonfarm business and business
sectors, respectively, in the March 2, 2023 “Productivity and Costs” news 
release (www.bls.gov/news.release/archives/prod2_03022023.pdf). 
 
Total Factor Productivity

Total factor productivity measures describe the relationship between output in
real terms and the inputs involved in its production. They do not measure the
specific contributions of labor or capital, or any other factor of production.
Rather, total factor productivity is designed to measure the joint influences
of technological change, efficiency improvements, returns to scale, 
reallocation of resources, and other factors on economic growth, allowing 
for the effects of capital and labor. 

The total factor productivity indexes for private business and private nonfarm
business are derived by dividing an output index by an index of combined 
inputs of capital input and labor input. The output indexes are computed as 
chained superlative indexes (Fisher Ideal indexes) of components of real 
output.

Research and Development

The stock of research and development in private nonfarm business is 
derived by aggregating different vintages of constant dollar measures of
research and development expenditures and allowing for depreciation. 
Current dollar expenditures for privately financed research and development
are obtained from annual issues of Research and Development in Industry 
published by the National Science Foundation. BLS develops price deflators
and estimates of the rate of depreciation.

The research and development data in the private nonfarm business sector 
presented here show the effect of spillovers from economic units that conduct 
research and development. BEA publishes measures of research and development
investments in each industry that include estimates of the direct returns to
firms conducting such research and development activities. By combining the 
direct returns to firms conducting research and development with the spillover
effect of other firms, a picture of the total overall effects of research and
development can be drawn.

Further description of these data and methods can be found in BLS Bulletin 
2331 (September 1989), "The Impact of Research and Development on Productivity
Growth" at www.bls.gov/productivity/technical-notes/impact-of-research-and
-development-on-productivity-growth-1989.pdf. 

BLS measures of year-to-year contributions of research and development to the 
private nonfarm business sector and measures of the stock of research and 
development are available at www.bls.gov/productivity/highlights/research-and
-development-contribution-to-total-factor-productivity.htm.

Other Information

Detailed information on methods used in this release can be found in the BLS
Handbook of Methods. Productivity Measures: Business Sector and Major Sector
section at www.bls.gov/opub/hom/msp/home.htm.

Comprehensive tables containing more detailed data than that which is 
published in this news release are available upon request at 202-691-5606
or at www.bls.gov/productivity/tables.

Industry specific contributions to output are available at
www.bls.gov/productivity/highlights/contributions-of-total-factor-productivity
-major-industry-to-output.htm.

If you are deaf, hard of hearing, or have a speech disability, please dial 
7-1-1 to access telecommunications relay services.

 
 Table A. Productivity, output, and inputs in the private nonfarm business and private business sectors for selected periods, 1987-2022  
 
Measure
Average annual growth rates
1987-2022
1990-2000
2000-2007
2007-2019
2019-2022
2020-2021
2021-2022
 
Private nonfarm business
Productivity
Total factor productivity
0.7
0.9
1.3
0.4
0.5
4.0
-1.2
Labor productivity
1.9
2.2
2.7
1.4
1.7
2.2
-1.7
Output per unit of capita
-0.6
-0.7
-0.6
-0.5
-0.5
5.5
-0.6
Output
2.8
4.0
2.8
2.0
2.1
7.9
2.3
Combined inputs
2.1
3.1
1.5
1.5
1.6
3.8
3.6
Labor input
1.4
2.2
0.6
1.0
1.1
4.7
4.0
Hours
0.9
1.7
0.1
0.5
0.5
5.6
4.0
Labor composition
0.5
0.5
0.4
0.5
0.6
-0.9
0.1
Capital input
3.4
4.8
3.5
2.4
2.6
2.3
2.9
Analytic Ratio
Capital intensity
2.5
3.0
3.3
1.9
2.1
-3.1
-1.1
Private business
Productivity
Total factor productivity
0.8
1.0
1.3
0.5
0.4
3.9
-1.2
Labor productivity
2.0
2.3
2.7
1.4
1.6
2.2
-1.6
Output per unit of capita
-0.5
-0.5
-0.6
-0.4
-0.6
5.3
-0.8
Output
2.8
4.0
2.8
2.0
2.1
7.7
2.2
Combined inputs
2.0
3.0
1.5
1.5
1.6
3.7
3.5
Labor input
1.3
2.2
0.5
1.0
1.0
4.5
3.9
Hours
0.9
1.7
0.1
0.5
0.4
5.5
3.9
Labor composition
0.5
0.5
0.4
0.5
0.6
-0.9
0.1
Capital input
3.3
4.6
3.4
2.4
2.6
2.3
3.0
Analytic Ratio
Capital intensity
2.5
2.8
3.3
1.8
2.2
-3.0
-0.8

 
 Table B. Labor productivity growth and the contributions of capital intensity, labor composition, and total factor productivity to labor productivity growth, private nonfarm business and private business sectors  
 
Measure
Average annual growth rates
1987-2021
1987-2022
1990-2000
2000-07
2007-19
2019-22
2020-21
2021-22
 
Private nonfarm business
Labor productivity Growth
2.0
1.9
2.2
2.7
1.4
1.7
2.2
-1.7
Contribution of capital intensity
0.9
0.9
1.0
1.1
0.7
0.8
-1.2
-0.4
Contribution of information processing equipment (IPE)
0.3
0.4
0.4
0.2
0.0
Contribution of research and development (R&D)
0.1
0.1
0.1
0.1
0.0
Contribution of intellectual property products (IPP) excluding R&D
0.2
0.2
0.2
0.2
0.1
Contribution of capital input excluding IPP & IPE
0.2
0.2
0.4
0.2
-1.3
Contribution of labor composition
0.3
0.3
0.3
0.3
0.3
0.4
-0.5
0.0
Total factor productivity growth
0.8
0.7
0.9
1.3
0.4
0.5
4.0
-1.2
Contribution of R&D to total factor productivity
0.2
0.2
0.2
0.1
0.2
Private business
Labor productivity Growth
2.1
2.0
2.3
2.7
1.4
1.6
2.2
-1.6
Contribution of capital intensity
0.9
0.9
0.9
1.1
0.7
0.8
-1.2
-0.4
Contribution of information processing equipment (IPE)
0.3
0.4
0.4
0.2
0.0
Contribution of research and development (R&D)
0.1
0.1
0.1
0.1
0.0
Contribution of intellectual property products (IPP) excluding R&D
0.2
0.2
0.2
0.2
0.1
Contribution of capital input excluding IPP & IPE
0.2
0.2
0.4
0.2
-1.3
Contribution of labor composition
0.3
0.3
0.3
0.3
0.3
0.4
-0.5
0.0
Total factor productivity growth
0.8
0.8
1.0
1.3
0.5
0.4
3.9
-1.2
[*]- Data for the most recent year not available.  Note: Total factor productivity plus contribution of capital intensity and labor composition may not sum to labor productivity due to independent rounding. Contributions of the components of capital intensity may not sum to the total contribution of capital intensity due to independent rounding.

 
 Table C. Real capital services growth by asset type, private nonfarm business and private business sectors  
 
Measure
Average annual growth rates
1987-2021
1990-2000
2000-07
2007-19
2019-21
2020-21
 
Private nonfarm business
All_Assets
3.5
4.8
3.5
2.4
2.4
2.3
Equipment
4.5
6.6
4.9
3.2
1.8
1.3
Information processing equipment (IPE)
9.2
13.0
9.5
6.8
5.9
6.0
Computers & related equipment
15.1
28.1
14.4
6.1
6.8
7.3
Communication equipment
9.1
8.0
9.7
10.5
8.1
7.9
Other IPE
3.0
3.3
3.2
2.8
2.8
2.7
All other equipment
2.4
3.5
2.9
1.7
0.3
-0.3
Structures
1.5
2.1
1.3
1.0
1.0
0.8
Intellectual property products (IPP)
6.1
7.5
5.4
4.7
6.5
6.7
Research and development
4.5
5.5
4.1
3.6
5.1
5.2
Software
10.3
14.0
8.1
7.2
9.9
10.2
Artistic originals
3.0
3.7
3.6
2.1
1.3
0.9
Rental residential capital
1.2
1.4
2.2
0.1
0.8
0.9
Inventories
2.6
3.5
2.1
2.5
-0.3
-0.5
Land
0.8
1.2
0.5
0.3
0.9
0.7
Private business
All_Assets
3.4
4.6
3.4
2.4
2.4
2.3
Equipment
4.4
6.5
4.9
3.2
1.8
1.3
Information processing equipment (IPE)
9.2
13.0
9.5
6.8
5.9
6.0
Computers & related equipment
15.1
28.1
14.4
6.1
6.8
7.3
Communication equipment
9.1
8.0
9.7
10.5
8.1
7.9
Other IPE
3.1
3.4
3.4
3.0
2.8
2.7
All other equipment
2.3
3.4
2.8
1.7
0.3
-0.3
Structures
1.5
2.0
1.2
1.0
1.0
0.8
Intellectual property products (IPP)
6.1
7.5
5.4
4.7
6.5
6.7
Research and development
4.5
5.5
4.1
3.6
5.1
5.2
Software
10.3
14.0
8.1
7.2
9.9
10.2
Artistic originals
3.0
3.7
3.6
2.1
1.3
0.9
Rental residential capital
1.2
1.4
2.2
0.1
0.8
0.9
Inventories
2.5
3.4
2.1
2.3
-0.4
-0.6
Land
0.7
0.7
0.5
0.1
1.3
1.5
Note: Real capital input by asset type are not available for the most recent reference year. For a brief discussion of methods used in preparing these data see the Technical Notes in this release.