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 
U.S. Postal Service; the Postal Rate Commission; 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 2023 and 2024 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, 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.

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.