Last Modified Date: May 09, 2017
Labor Productivity: Labor productivity describes the relationship between real 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 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. Industry output reflects sectoral value of production, 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 2016 is constructed with data on industrial production from the
Federal Reserve and BLS price indexes.
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 production workers, CPS data on hours of nonproduction, self-employed, and unpaid family
workers, and ratios of hours worked to hours paid based on data from 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.