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Economic News Release
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Total Factor Productivity News Release

For release 10:00 am    (ET) Thursday, March 24, 2022	USDL-22-0506
Technical information:	(202) 691-5606 • Productivity@bls.gov • www.bls.gov/mfp
Media contact:	        (202) 691-5902 • PressOffice@bls.gov


TOTAL FACTOR PRODUCTIVITY – 2021 

Private nonfarm business sector total factor productivity (TFP) increased 3.2 
percent in 2021, the U.S. Bureau of Labor Statistics reported today. 
(See table A.) The 2021 increase in TFP reflects a 7.4-percent increase in 
output and a 4.1-percent increase in the combined inputs of capital and labor.
Capital input grew by 2.0 percent and labor input–which is the combined effect
of hours worked and labor composition–increased by 5.3 percent.

Total factor productivity (TFP) is calculated by dividing an index of real 
output by an index of combined inputs of labor and capital. Total factor 
productivity annual measures differ from BLS quarterly labor productivity 
(output per hour worked) measures because the former also 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.

------------------------------------------------------------------------------
|	Terminology Change for Multifactor Productivity Data		     |
|The BLS Productivity program replaced the term multifactor productivity     |
|(MFP) with total factor productivity (TFP) in November 2021. This was a     |
|change in terminology only and will not affect the data or methodology used |
|in computing the measures. The use of the term “total factor productivity”  |
|will improve the visibility and accessibility of our data and was           |
|accompanied by changes to the BLS website and will be adopted in all future |
|productivity news releases.                                                 |
------------------------------------------------------------------------------

Private business sector total factor productivity also increased 3.2 percent 
in 2021, as output increased 7.2 percent and combined inputs increased 4.0 
percent. (See table A.) 

Total Factor Productivity Trends

The 3.2-percent growth in private nonfarm business TFP in 2021 was the largest
growth since 1983 and resulted from strong output growth outpacing growth of 
combined inputs. The 7.4-percent growth of output in 2021 was the largest 
output growth since 1984, while the combined inputs growth of 4.1 percent was
the largest growth for the series since 1997.

In 2021, both output and combined inputs were at higher levels than their 
pre-pandemic levels of 2019. The level of output is 2.7 percent higher than 
2019, while the level of combined inputs is 1.6 percent higher. The quick 
recovery of these measures from the 2020 COVID-19 recession is in sharp 
contrast to the recovery seen in the previous 2007-09 Great Recession, when
it took output 4 years to recover to the 2007 levels and 5 years for combined
inputs to recover.

While combined inputs have recovered from the effects of the pandemic, not all
of the input components have returned to pre-pandemic levels. Combined input 
growth is made up of growth in three components: capital input, hours worked, 
and labor composition. Capital input growth has slowed from the pre-pandemic 
growth of 3.3 percent in 2019 to 2.0 percent in 2021. Hours worked grew 5.4 
percent in 2021, the largest growth in the series since 1984, however hours 
worked levels remain 1.7 percent below the 2019 level. Labor composition 
experienced historic growth in 2020 (1.5 percent) but 2021 grew much more 
slowly (0.1 percent) even below the average growth experienced over the past 
20 years (0.4 percent). 

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 2021, private nonfarm
business labor productivity increased 1.9 percent. (See table B.)

The contribution of capital intensity to labor productivity growth declined 1.3
percent in the private nonfarm business sector in 2021. This was the largest 
annual decline since the series began in 1948. Capital intensity is the ratio 
of capital input growth to labor hours growth. The 2021 decline is a result of
choices toward hiring labor and working more hours rather than investing in 
more capital. The 2021 decrease in this measure was driven by the increase in 
hours worked of 5.4 percent relative to the slower capital input growth of 2.0
percent in 2021. 

The contribution of labor composition to labor productivity for private nonfarm
business had no growth in 2021 due to minimal labor composition growth. This
follows record growth in the contribution of labor composition in 2020 of 0.9
percent. Labor composition estimates the effect of shifts in the age, 
education, and gender composition of the workforce on hours worked. The 
deceleration in the labor composition growth from 1.5 percent in 2020 to 0.1 
percent in 2021 isprimarily due to lower paid workers reentering the labor 
market in 2021 following employment declines during the COVID-19 pandemic.(See
table A).

Detailed Capital Input Trends

Capital input in the private nonfarm business sector increased at an average 
annual rate of 2.7 percent in 2020, the latest year of available detailed 
capital data. The growth of capital input in 2020 was 0.6 percentage point 
slower than the 3.3 percent growth in the previous year, the largest slowdown
in capital growth since the Great Recession year of 2009, as the COVID-19 
pandemic slowed production. (See table C.)

Capital input growth is the approximate sum of the contributions of different 
asset types. As in all years, intellectual property products and equipment are
the largest contributors to capital input growth. In the pandemic recession 
year of 2020, the 0.6-percentage point slowdown in growth was primarily due to
the equipment and inventories assets, as their contributions to capital input
growth decelerated by 0.3 percentage point and 0.2 percentage point, 
respectively. The Great Recession years of 2008 and 2009 saw a similar trend,
when capital input growth also slowed significantly in the equipment and 
inventories assets, but at a much larger magnitude. In 2009, the contribution
of equipment assets slowed a full percentage point from 1.4 percentage points
to 0.4 percentage point, while the contribution of inventories was a drag on
capital growth, declining 0.4 percentage point.



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 includes 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 paid of employees are largely obtained from the Current
Employment Statistics (CES) program. Weekly paid hours are adjusted to hours 
worked 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, weekly paid hours are adjusted to hours at work
using a combination of NCS and Hours at Work survey data. Hours worked for 
nonproduction and supervisory workers are derived using data from the Current 
Population Survey (CPS), CES, and NCS. The hours worked of proprietors, unpaid
family workers, and farm employees are derived from the CPS. Hours worked data
reflect estimates in the March 3, 2022 “Productivity and Costs” news release 
(www.bls.gov/news.release/archives/prod2_03032022.htm).


The estimates of 2021 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 3, 2022 “Productivity
and Costs” news release (www.bls.gov/news.release/archives/prod2_03032022.htm).
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.

Additional information concerning data sources and methods of measuring labor 
composition can be found in “Changes in the Composition of Labor for BLS 
Multifactor Productivity Measures, 2014” (www.bls.gov/mfp/mprlabor.pdf). 

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/mfp/mprdload.htm.


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 24, 2022. The estimates of 2021 
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 3, 2022 “Productivity and Costs” news 
release (www.bls.gov/news.release/archives/prod2_03032022.htm). 
 
 
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/mfp/mfparchive.htm. 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/mfp/rdtable.pdf.


Other Information

Comprehensive tables containing additional data beyond the scope of this press 
release are available at www.bls.gov/mfp/mprdload.htm or upon request through 
https://data.bls.gov/forms/mfp.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” 
(www.bls.gov/mfp/mfparchive.htm) and on the BLS total factor Productivity 
website under the title “Technical Information About the BLS Multifactor 
Productivity Measures for Major Sectors and 18 NAICS 3-digit Manufacturing
Industries” (www.bls.gov/mfp/mprtech.pdf). General information is available
on the BLS website at www.bls.gov/mfp/mprover.htm. Additional data not 
contained in the release can be obtained at www.bls.gov/mfp. Comprehensive
tables for the private business and private nonfarm business sector can be 
downloaded at www.bls.gov/mfp/mprdload.htm, including data that links 1948-87
SIC data to NAICS data from 1987 forward. 

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, 1987-2021
MeasureAverage annual growth rates
1987-20211990-20002000-072007-192019-202020-21

Private nonfarm business

Productivity

Total factor productivity

0.80.91.30.5-2.03.2

Labor productivity

2.02.22.71.42.51.9

Output per unit of capital input

-0.6-0.7-0.6-0.5-6.85.3

Output

2.84.02.82.0-4.37.4

Combined inputs

2.03.01.51.5-2.44.1

Labor input

1.32.20.51.0-5.35.3

Hours

0.81.70.10.6-6.75.4

Labor composition

0.40.50.40.41.50.1

Capital input

3.54.73.52.52.72.0

Analytic ratio

Capital intensity

2.63.03.31.910.1-3.2

Private business

Productivity

Total factor productivity

0.81.01.30.5-1.93.2

Labor productivity

2.02.32.71.42.61.9

Output per unit of capital input

-0.5-0.5-0.6-0.4-6.65.0

Output

2.84.02.82.0-4.27.2

Combined inputs

2.03.01.41.5-2.34.0

Labor input

1.22.20.41.0-5.35.2

Hours

0.81.70.10.6-6.65.3

Labor composition

0.40.50.40.41.40.1

Capital input

3.44.63.42.42.62.1

Analytic ratio

Capital intensity

2.52.83.31.89.9-3.0

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
MeasureAverage annual growth rates
1987-20201987-20211990-20002000-072007-192019-202020-21

Private nonfarm business

Labor productivity growth

2.02.02.22.71.42.51.9

Contribution of capital intensity

0.90.91.01.10.73.7-1.3

Contribution of information processing equipment (IPE)

0.3-0.40.40.20.4-

Contribution of research and development (R&D)

0.1-0.10.10.10.5-

Contribution of intellectual property products (IPP) excluding R&D

0.2-0.20.20.20.6-

Contribution of capital input excluding IPP & IPE

0.3-0.20.40.22.0-

Contribution of labor composition

0.30.30.30.30.20.90.0

Total factor productivity growth

0.70.80.91.30.5-2.0 3.2

Contribution of R&D to total factor productivity

0.2-0.20.20.10.2-

Private business

Labor productivity growth

2.02.02.32.71.42.61.9

Contribution of capital intensity

0.90.90.91.10.73.6-1.2

Contribution of information processing equipment (IPE)

0.3-0.40.40.20.4-

Contribution of research and development (R&D)

0.1-0.10.10.10.5-

Contribution of intellectual property products (IPP) excluding R&D

0.2-0.20.20.20.6-

Contribution of capital input excluding IPP & IPE

0.3-0.20.40.22.0-

Contribution of labor composition

0.30.30.30.20.20.90.0

Total factor productivity growth

0.80.81.01.30.5-1.93.2

[*]- 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
MeasureAverage annual growth rates
1987-20201990-20002000-072007-192019-20

Private nonfarm business

All assets

3.54.73.52.52.7

Equipment

4.66.64.93.22.7

Information processing equipment (IPE)

9.413.09.56.86.8

Computers & related equipment

15.328.114.46.16.4

Communication equipment

9.28.09.710.69.8

Other IPE

3.03.33.22.83.6

All other equipment

2.53.52.91.71.2

Structures

1.62.11.31.01.1

Intellectual property products (IPP)

6.07.55.44.76.2

Research and development

4.55.54.13.64.7

Software

10.414.08.17.29.4

Artistic originals

3.03.73.62.11.8

Rental residential capital

1.21.42.20.10.6

Inventories

2.73.52.12.6-0.2

Land

0.81.20.50.31.2

Private business

All assets

3.44.63.42.42.6

Equipment

4.56.44.93.22.6

Information processing equipment (IPE)

9.413.09.56.86.7

Computers & related equipment

15.328.114.46.16.4

Communication equipment

9.28.09.710.69.8

Other IPE

3.13.43.33.03.6

All other equipment

2.43.42.81.71.2

Structures

1.52.01.21.01.1

Intellectual property products (IPP)

6.07.55.44.76.2

Research and development

4.55.54.13.64.7

Software

10.414.08.17.29.4

Artistic originals

3.03.73.62.11.8

Rental residential capital

1.21.42.20.10.6

Inventories

2.63.42.12.4-0.3

Land

0.70.90.50.11.1

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.


Last Modified Date: March 24, 2022