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 2023 and 2024 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.

Annual Percent Change: The annual percent change is the change in a series from one year to the next 
as a percent of the series-value in the previous year. Over a period of more than one year, the annual 
percent change is the compound annual growth rate in an index series, or an annualized average growth 
rate. Because the change of an index series varies from year to year, the annual percent change for a 
long time period reflects the constant rate that can be applied to each year in a period, from the 
start to the end, that would give the same total result. It is calculated as (Ending Value/Starting 
Value)^(1/Number of Years) - 1.