Technical notes

Technical Notes

Capital Input 

Capital input is the services derived from the stock of physical assets
and intellectual property assets. There are 90 asset types for fixed 
business equipment, structures, inventories, land, and intellectual 
property products. Data on investment for fixed assets are obtained 
from the Bureau of Economic Analysis (BEA). Data on inventories are 
estimated using information from BEA and the Internal Revenue Service (IRS)
Corporation Income Returns. Data for land in the farm sector are obtained 
from the U.S. Department of Agriculture (USDA). Nonfarm industry detail for 
land is based on IRS book value data. Current-dollar value-added data, obtained
from BEA, are used in estimating capital rental prices.

Additional detail on information processing equipment and intellectual 
property products are available in table C. Information processing 
equipment is composed of three broad classes of assets: computers and
related equipment, communications equipment, and other information 
processing equipment. Computers and related equipment include mainframe
computers, personal computers, printers, terminals, tape drives, storage
devices, and integrated systems. Communications equipment is not further 
differentiated. Other information processing equipment includes medical 
equipment and related instruments, electromedical instruments, nonmedical
instruments, photocopying and related equipment, and office and accounting
machinery. Intellectual property products are composed of three broad 
classes of assets: software, research and development, and artistic originals.
Software is comprised of pre-packaged and custom. Research and development is
creative work undertaken to increase the stock of knowledge for the purpose
of discovering or developing new products or improving existing ones. 
Research and Development also includes own-account R&D for software which
had previously been classified in software. Artistic originals include 
theatrical movies, long-lived television programs, books, music, and other
forms of entertainment. Structures include nonresidential structures and 
residential capital that are rented out by profit-making firms or persons.
Financial assets are excluded from capital input measures, as are owner-occupied
residential structures. The aggregate capital input measures are obtained by
Tornqvist aggregation of the capital stocks for each asset type within each of
61 NAICS industry groupings using estimated rental prices for each asset type.
Each rental price reflects the nominal rate of return to all assets within the
industry and rates of economic depreciation and revaluation for the specific asset;
rental prices are adjusted for the effects of taxes. Current-dollar capital costs
 can be defined as each asset’s rental price multiplied by its constant-dollar 
stock, adjusting for capital composition effects. 


Capital input measures constructed for the most recent year are preliminary and
are based on less detail than the rest of the series. These measures consist of
6 asset types as opposed to the 90 asset types for fixed business equipment, 
structures, inventories, land, and intellectual property products included 
in estimates for all previous years. The assets included in the most recent 
year are structures, fixed business equipment, intellectual property products, 
inventories, rental residences, and land. Investments, depreciation, and capital
income are estimated for each of these six aggregates. Capital input is calculated
by a chained superlative Tornqvist index combining stocks of the six asset
categories, weighted by capital income shares. See the June 2005 Monthly Labor 
Review article, “Preliminary estimates of multifactor productivity growth” 
located at www.bls.gov/opub/mlr/2005/06/art3full.pdf. 

Labor Input

Labor input in private business and private nonfarm business is obtained
by a chained superlative Tornqvist aggregation of the hours worked, 
classified by age, education, and sex with weights determined by each
group’s share of the total wage bill. Hours worked data for the measures
this news release include hours worked for all persons working in the
sector—wage and salary workers, the self-employed and unpaid family workers.
The primary source of hours data is the BLS Current Employment Statistics (CES) 
program, which provides monthly survey data on the number of jobs held by
and hours paid to wage and salary workers in nonfarm establishments, 
counting a person who is employed by two or more establishments at each
place of employment. Hours of paid time off are excluded from hours paid
using data from the National Compensation Survey (NCS) for 1996 forward
and data from the BLS Hours at Work survey, conducted for this purpose,
prior to 1990. Between 1990 and 1995, hours of paid time off are excluded
using a combination of NCS and Hours at Work survey data. Off-the-clock
hours are added, yielding hours worked, using data from the Current Population
Survey (CPS). To estimate the hours of farm labor, nonfarm proprietors, 
and nonfarm unpaid family workers the CPS data are used. The hours worked
of proprietors, unpaid family workers, and farm employees are derived from 
the CPS. Hours worked data reflect estimates in the March 6, 2025 “Productivity
and Costs” news release (www.bls.gov/news.release/archives/prod2_03062025.pdf).

The estimates of 2024 hours worked for the private nonfarm business
and private business sectors are extrapolated from the hours worked
reported in the nonfarm business and business sectors, respectively, 
in the March 6, 2025 “Productivity and Costs” news release 
(www.bls.gov/news.release/archives/prod2_03062025.pdf). 
The growth rate of labor composition is defined as the difference 
between the growth rate of weighted labor input and the growth rate 
of the hours of all persons. The index of hours worked of all persons 
including employees, proprietors, and unpaid family workers, classified 
by age, education, and sex are weighted together using median wages to 
compute the labor composition estimates reflecting the different skillset 
of the work force. These cell estimates are smoothed using a three-year 
moving average to address missing observations and reduce volatility.

Combined Inputs

Labor input and capital input are combined using chained superlative
Tornqvist aggregation, applying weights that represent each component's 
average share of total costs. The chained superlative Tornqvist index uses
changing weights; the share in each year is averaged with the preceding year's
share. Total costs are defined as the value of output less a portion of taxes 
on production and imports. Most taxes on production and imports, such as excise
taxes, are excluded from costs; however, property and motor vehicle taxes remain
in total costs.

Capital Intensity

Capital intensity is the ratio of capital input to hours worked in the 
production process. The higher the capital to hours ratio, the more 
capital intensive the production process becomes. 

In a production process, profit-maximizing/cost-minimizing firms 
adjust the factor proportions of capital and labor when the price 
of one factor is less than the other factor; there is a tendency 
for the firms to substitute the less expensive factor for the more 
expensive one. In the short run, changes in hours worked are more 
variable than changes in capital input. Changes in hours worked in 
business cycles can result in volatility of the capital intensity 
ratio over short periods of time. In the long run an increase in wages 
relative to the price of capital will induce the firm to substitute 
capital for labor, resulting in an increase in capital intensity. 

Rising labor costs are, in fact, an incentive for firms to introduce 
automated production processes. Industry estimates of capital to hours 
ratios can be obtained at www.bls.gov/productivity/tables/.

Value-Added Output

Private business sector output is a chain-type, current-weighted index 
constructed after excluding from gross domestic product (GDP) the 
following outputs: general government, nonprofit institutions, private 
households (including owner-occupied housing), and government enterprises. 
This release presents data for the private business and private nonfarm 
business sectors. Additionally, the private nonfarm business sector 
excludes farms from the private business sector but includes agricultural
services. Total factor productivity measures exclude government enterprises, 
while the BLS quarterly Productivity and Costs series include them. 

The output measures are based on the National Income and Product Accounts 
(NIPA) data released by BEA on February 27, 2025. The estimates of 2024 
output for the private nonfarm business and private business sectors are 
extrapolated from the output reported in the nonfarm business and business 
sectors, respectively, in the March 6, 2025 “Productivity and Costs” news 
release (www.bls.gov/news.release/archives/prod2_03062025.pdf). 

Total Factor Productivity

Total factor productivity measures describe the relationship between 
output in real terms and the inputs involved in its production. They 
do not measure the specific contributions of labor or capital, or any 
other factor of production. Rather, total factor productivity is 
designed to measure the joint influences of technological change, 
efficiency improvements, returns to scale, reallocation of resources, 
and other factors on economic growth, allowing for the effects of 
capital and labor. 

The total factor productivity indexes for private business and private 
nonfarm business are derived by dividing an output index by an index of 
combined inputs of capital input and labor input. The output indexes are 
computed as chained superlative indexes (Fisher Ideal indexes) of 
components of real output.

Research and Development

The stock of research and development in private nonfarm business is 
derived by aggregating different vintages of constant dollar measures 
of research and development expenditures and allowing for depreciation. 
Current dollar expenditures for privately financed research and development 
are obtained from annual issues of Research and Development in Industry 
published by the National Science Foundation. BLS develops price deflators 
and estimates of the rate of depreciation.

The research and development data in the private nonfarm business sector 
presented here show the effect of spillovers from economic units that conduct
research and development. BEA publishes measures of research and development 
investments in each industry that include estimates of the direct returns to 
firms conducting such research and development activities. By combining the 
direct returns to firms conducting research and development with the spillover 
effect of other firms, a picture of the total overall effects of research and 
development can be drawn.

Further description of these data and methods can be found in BLS Bulletin 
2331 (September 1989), "The Impact of Research and Development on Productivity
Growth" at 
www.bls.gov/productivity/technical-notes/impact-of-research-and-development-on-productivity-growth-1989.pdf. 

BLS measures of year-to-year contributions of research and development to the private
nonfarm business sector and measures of the stock of research and development are available at
www.bls.gov/productivity/highlights/research-and-development-contribution-to-total-factor-productivity.htm.


Other Information

Detailed information on methods used in this release can be found in the BLS Handbook of
Methods. Productivity Measures: Business Sector and Major Sector section at 
www.bls.gov/opub/hom/msp/home.htm.

Comprehensive tables containing more detailed data than are published in this news
release are available upon request at 202-691-5606 or at www.bls.gov/productivity/tables.

Industry specific contributions to output are available at
www.bls.gov/productivity/highlights/contributions-of-total-factor-productivity-major-industry-to-output.htm.


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