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 for data in this release is 
derived by deflating nominal sales or values of production using price indexes. Industry output measures 
are constructed primarily using U.S. Census Bureau data from the economic censuses and annual 
surveys along with U.S. Bureau of Economic Analysis National Income and Product Accounts reported 
revenues and prices, together with information on price changes from BLS. 

Labor Hours: Labor hours are measured as annual hours worked by all workers in an industry. All 
workers include the sum of BLS Current Employment Statistics (CES) data on the number of jobs held 
by wage and salary workers in nonfarm establishments and Current Population Survey (CPS) data on the 
number of self-employed and unpaid family workers. Labor hours for wage and salary workers are 
estimated using CES data on hours paid of all employees. Paid hours are adjusted to an hours worked 
concept using ratios of hours worked to hours paid based on data from the National Compensation 
Survey (NCS) and off-the-clock hours incorporated from CPS data. Hours worked of self-employed and 
unpaid family workers are directly from the CPS. 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.