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Economic News Release

Technical note

                                Technical Note

Labor Productivity: Labor productivity describes the relationship between output and the labor
hours involved in its production. These measures show the changes from period to period in the 
amount of goods and services produced per hour worked. Although the labor productivity measures
relate real output in an industry to hours worked of all persons in that industry, they do not 
measure the specific contribution of labor to growth in output. Rather, they reflect the joint 
effects of many influences, including: changes in technology; capital investment; utilization 
of capacity, energy, and materials; the use of purchased services inputs, including contract 
employment services; the organization of production; the characteristics and effort of the 
workforce; and managerial skill. 

Unit Labor Costs: Unit labor costs represent the cost of labor required to produce one unit of 
output. The unit labor cost indexes are computed by dividing an index of nominal industry labor 
compensation by an index of real industry output. Unit labor costs also describe the relationship 
between compensation per hour worked (hourly compensation) and real output per hour worked (labor 
productivity). When hourly compensation growth outpaces productivity, unit labor costs increase. 
Alternatively, when productivity growth exceeds hourly compensation, unit labor costs decrease. 

Output: Industry output is measured as an annual-weighted index of the changes in the various 
products (in real terms) provided for sale outside the industry. Real industry output is usually 
derived by deflating nominal sales or values of production using BLS price indexes, but for some 
industries it is measured by physical quantities of output. Output is the measure of what is 
produced by an industry, derived by adjusting shipments for changes in inventories and removing 
intra-industry transactions. Industry output measures are constructed primarily using data from 
the economic censuses and annual surveys of the Census Bureau, U.S. Department of Commerce, 
together with data on price changes primarily from BLS. Data from the Bureau of Economic Analysis
at the U.S. Department of Commerce is used in part to construct intra-industry transactions. Other 
data sources include the Energy Information Administration at the U.S. Department of Energy and 
the U.S. Geological Survey at the U.S. Department of the Interior. Manufacturing industry output 
for 2022 is estimated based on historical relationships between BLS sectoral output, BLS price 
indexes, and data on industrial production from the Federal Reserve Board.

Labor Hours: Labor hours are measured as annual hours worked by all employed persons in an 
industry. Data on industry employment and hours come primarily from the BLS Current Employment 
Statistics (CES) survey and Current Population Survey (CPS). CES data on the number of total and 
production worker jobs held by wage and salary workers in nonfarm establishments are supplemented 
with CPS data on self-employed and unpaid family workers to estimate industry employment. Hours 
worked estimates are derived using CES and CPS employment, CES data on the average weekly hours 
paid of all employees, CPS data on hours of self-employed and unpaid family workers, and ratios 
of hours worked to hours paid based on data from both the CPS and the National Compensation 
Survey (NCS). For some industries, employment and hours data are supplemented or further 
disaggregated using data from the BLS Quarterly Census of Employment and Wages (QCEW), the Census 
Bureau, or other sources. Hours worked are estimated separately for different types of workers 
and then are directly aggregated; no adjustments for labor composition are made.

Labor Compensation: Labor compensation, defined as payroll plus supplemental payments, is a 
measure of the cost to the employer of securing the services of labor. Payroll includes salaries, 
wages, commissions, dismissal pay, bonuses, vacation and sick leave pay, and compensation in kind. 
Supplemental payments include both legally required expenditures and payments for voluntary 
programs. The legally required portion consists primarily of federal old age and survivors' 
insurance, unemployment compensation, and workers' compensation. Payments for voluntary programs 
include all programs not specifically required by legislation, such as the employer portion of 
private health insurance and pension plans. Industry compensation measures are constructed 
primarily using data from the BLS QCEW and the economic censuses of the Census Bureau at the U.S. 
Department of Commerce.

Compound Annual Growth Rate: The compound annual growth rate, referred to in the release tables 
as "average annual percent change," is the annualized average rate of change in an index series 
over a period of more than one year. In reality, the annual change of an index series is different 
from year to year. However, the compound annual growth rate equals the rate that can be applied 
each year from the start to the end that would give the same final period result if every year's 
growth was exactly the same. It is calculated as (Ending Value/Starting Value)^(1/Number of Years)-1.
Last Modified Date: April 27, 2023