Technical note

Technical Note

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 and real output per hour (labor productivity). Increases in hourly compensation 
increase unit labor costs; increases in labor productivity offset compensation increases and reduce 
unit labor costs.

Output: Real 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 measures are constructed primarily using data from the economic censuses and annual 
surveys of the Census Bureau, U.S. Department of Commerce, together with information on price changes 
from BLS. Other data sources include: the Energy Information Administration, U.S. Department of 
Energy; the Bureau of Transportation Statistics, U.S. Department of Transportation; the Surface 
Transportation Board; the U.S. Postal Service; and the Federal Deposit Insurance Corporation. Data 
from both the Census Bureau's Quarterly Services Survey and Monthly Retail Trade Survey are used to 
construct preliminary output measures for 2024 and 2025 for most industries.

Labor Hours: Labor hours are measured as annual hours worked by all employed persons in an industry. 
This includes hours worked for pay as well as uncompensated work time. 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 self-employed and unpaid family 
worker data to estimate industry employment. Hours worked estimates are derived using: CES and CPS 
employment; CES data on the average weekly hours paid of production and nonproduction workers; 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. Additional 
sources of employment and hours data for certain service industries include the Association of 
American Railroads, the U.S. Department of Transportation, the Surface Transportation Board, and 
the U.S. Postal Service. 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, U.S. Department of 
Commerce. Additional sources of compensation data include the Surface Transportation Board and the 
U.S. Postal Service.

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.