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Economic News Release

Total factor productivity, 2021

For release 10:00 am    (ET) Thursday, March 24, 2022	USDL-22-0506
Technical information:	(202) 691-5606 • •
Media contact:	        (202) 691-5902 •


Private nonfarm business sector total factor productivity (TFP) increased 3.2 
percent in 2021, the U.S. Bureau of Labor Statistics reported today. 
(See table A.) The 2021 increase in TFP reflects a 7.4-percent increase in 
output and a 4.1-percent increase in the combined inputs of capital and labor.
Capital input grew by 2.0 percent and labor input–which is the combined effect
of hours worked and labor composition–increased by 5.3 percent.

Total factor productivity (TFP) is calculated by dividing an index of real 
output by an index of combined inputs of labor and capital. Total factor 
productivity annual measures differ from BLS quarterly labor productivity 
(output per hour worked) measures because the former also includes the 
influences of capital input and shifts in the composition of workers. Measures
for the most recent year of this release are preliminary estimates. See the 
Technical Notes for additional information.

|	Terminology Change for Multifactor Productivity Data		     |
|The BLS Productivity program replaced the term multifactor productivity     |
|(MFP) with total factor productivity (TFP) in November 2021. This was a     |
|change in terminology only and will not affect the data or methodology used |
|in computing the measures. The use of the term “total factor productivity”  |
|will improve the visibility and accessibility of our data and was           |
|accompanied by changes to the BLS website and will be adopted in all future |
|productivity news releases.                                                 |

Private business sector total factor productivity also increased 3.2 percent 
in 2021, as output increased 7.2 percent and combined inputs increased 4.0 
percent. (See table A.) 

Total Factor Productivity Trends

The 3.2-percent growth in private nonfarm business TFP in 2021 was the largest
growth since 1983 and resulted from strong output growth outpacing growth of 
combined inputs. The 7.4-percent growth of output in 2021 was the largest 
output growth since 1984, while the combined inputs growth of 4.1 percent was
the largest growth for the series since 1997.

In 2021, both output and combined inputs were at higher levels than their 
pre-pandemic levels of 2019. The level of output is 2.7 percent higher than 
2019, while the level of combined inputs is 1.6 percent higher. The quick 
recovery of these measures from the 2020 COVID-19 recession is in sharp 
contrast to the recovery seen in the previous 2007-09 Great Recession, when
it took output 4 years to recover to the 2007 levels and 5 years for combined
inputs to recover.

While combined inputs have recovered from the effects of the pandemic, not all
of the input components have returned to pre-pandemic levels. Combined input 
growth is made up of growth in three components: capital input, hours worked, 
and labor composition. Capital input growth has slowed from the pre-pandemic 
growth of 3.3 percent in 2019 to 2.0 percent in 2021. Hours worked grew 5.4 
percent in 2021, the largest growth in the series since 1984, however hours 
worked levels remain 1.7 percent below the 2019 level. Labor composition 
experienced historic growth in 2020 (1.5 percent) but 2021 grew much more 
slowly (0.1 percent) even below the average growth experienced over the past 
20 years (0.4 percent). 

Labor Productivity Trends

Labor productivity growth is the approximate sum of three components: total 
factor productivity growth, the contribution of capital intensity, and the 
contribution of shifts in the composition of labor. In 2021, private nonfarm
business labor productivity increased 1.9 percent. (See table B.)

The contribution of capital intensity to labor productivity growth declined 1.3
percent in the private nonfarm business sector in 2021. This was the largest 
annual decline since the series began in 1948. Capital intensity is the ratio 
of capital input growth to labor hours growth. The 2021 decline is a result of
choices toward hiring labor and working more hours rather than investing in 
more capital. The 2021 decrease in this measure was driven by the increase in 
hours worked of 5.4 percent relative to the slower capital input growth of 2.0
percent in 2021. 

The contribution of labor composition to labor productivity for private nonfarm
business had no growth in 2021 due to minimal labor composition growth. This
follows record growth in the contribution of labor composition in 2020 of 0.9
percent. Labor composition estimates the effect of shifts in the age, 
education, and gender composition of the workforce on hours worked. The 
deceleration in the labor composition growth from 1.5 percent in 2020 to 0.1 
percent in 2021 isprimarily due to lower paid workers reentering the labor 
market in 2021 following employment declines during the COVID-19 pandemic.(See
table A).

Detailed Capital Input Trends

Capital input in the private nonfarm business sector increased at an average 
annual rate of 2.7 percent in 2020, the latest year of available detailed 
capital data. The growth of capital input in 2020 was 0.6 percentage point 
slower than the 3.3 percent growth in the previous year, the largest slowdown
in capital growth since the Great Recession year of 2009, as the COVID-19 
pandemic slowed production. (See table C.)

Capital input growth is the approximate sum of the contributions of different 
asset types. As in all years, intellectual property products and equipment are
the largest contributors to capital input growth. In the pandemic recession 
year of 2020, the 0.6-percentage point slowdown in growth was primarily due to
the equipment and inventories assets, as their contributions to capital input
growth decelerated by 0.3 percentage point and 0.2 percentage point, 
respectively. The Great Recession years of 2008 and 2009 saw a similar trend,
when capital input growth also slowed significantly in the equipment and 
inventories assets, but at a much larger magnitude. In 2009, the contribution
of equipment assets slowed a full percentage point from 1.4 percentage points
to 0.4 percentage point, while the contribution of inventories was a drag on
capital growth, declining 0.4 percentage point.

Last Modified Date: March 24, 2022