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 U.S. 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 the Quarterly Service Survey from the 
Census Bureau are used to construct preliminary output measures for 2023 for some industries. Data from both 
the Census Bureau's Quarterly Service Survey and Monthly Retail Trade Survey are used to construct 
preliminary output measures for 2023 for some 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 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 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 economic censuses and annual surveys of the Census Bureau, U.S. Department of Commerce. The 
estimates for 2023 are constructed using data from the BLS Quarterly Census of Employment and Wages (QCEW).

Annual Percent Change: The annual percent change is the compound annual growth rate in an index series over a 
period of more than one year. The change of an index series varies from year to year. However, the annual 
percent change is 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.