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Economic News Release

Total Factor Productivity in Major Industries – 2020

For release 10:00 a.m.  (ET) Thursday, November 18, 2021       USDL-21-2019
Technical information:  (202) 691-5606 • •
Media contact:		(202) 691-5902 •


Total factor productivity (TFP) declined in 16 out of 21 major industries 
measured in 2020, the U.S. Bureau of Labor Statistics (BLS) reported today.
These negative TFP trends were largely due to the economic downturn caused
by the COVID-19 pandemic. As with the Great Recession, the decline in TFP
growth was widespread across the economy but more severe in 2020 compared to
2008-09. In 2020, the largest industry declines were in arts, entertainment,
and recreation (-17.9 percent) and educational services (-10.9 percent),
while the largest TFP decline during the Great Recession was in the finance
and insurance industry (-5.5 percent). (See table 1).

The TFP declines in 2020 were primarily due to declines in real output 
outpacing declines in the combined inputs of capital, labor, energy,
materials, and purchased business services. Among the combined inputs,
labor contracted in 18 of 21 major industries measured and the combination
of energy, materials, and purchased business services (intermediate inputs)
declined in 15 of the industries measured. (See table 1). Out of the five 
industries with productivity growth, three industries had declines in both
output and combined inputs.

|	Terminology Change for Multifactor Productivity Data		     |
|The BLS Productivity program will replace the term multifactor productivity |
|(MFP) with total factor productivity (TFP) beginning with this release.     |
|This is a change in terminology only and will not affect the data or        |
|methodology. The use of the term total factor productivity will improve the |
|visibility and accessibility of our data and will be accompanied by changes |
|to the BLS website and future productivity news releases.                   |

Total factor productivity is defined as output per unit of combined inputs. 
TFP shows the relationship between changes in real sectoral output and changes
in the combined inputs of capital services (K), labor input (L), and
intermediate inputs (energy (E), materials (M), and purchased business 
services (S)) used in production of final goods and services. It reflects
economic growth that is not due to growth in measured KLEMS inputs, 
including technological change, organizational changes in the production 
process, and other efficiency improvements.

Industry spotlight: Arts, entertainment, and recreation

The COVID-19 pandemic hit service providing industries especially hard as 
they rely heavily on face-to-face contact with customers. The arts, 
entertainment, and recreation industry had the largest decline in TFP
(-17.9 percent) of the 21 major industries measured. Not only did this 
industry experience a record decline in output of 37.7 percent, but it 
also experienced historic declines in four out of the five KLEMS inputs. 
In 2020, labor declined 25.6 percent, energy declined 37.7 percent, 
materials declined 40.6 percent, and purchased business services declined
31.8 percent. The last time these four inputs declined at the same time 
was during the Great Recession year of 2009, however, the magnitude of
the 2020 declines were much more severe. (See table 2). 

The closure of museums, entertainment venues, sports arenas, and parks
had a cascading affect beyond lost revenue of ticket sales. Widespread 
business closures and drastically reduced hours worked led to lower energy 
consumption. With no fans in the seats, there was no need for the other 
material inputs and purchased business services, including vendor contracts.
Capital services was the only input that maintained growth because these 
assets, such as buildings, land, machinery, and equipment, are not easily 
reduced. Although the arts, entertainment, and recreation industry was hit
the hardest, there were also significant KLEMS input declines in other 
industries, such as accommodation and food services; educational services; 
transportation and warehousing; other services, except government; and 
mining. (See tables 1 and 2.)

Total factor productivity and KLEMS as sources of labor productivity growth

The sudden arrival of the COVID-19 pandemic forced industries to displace
workers and cancel existing service contracts. As production throughout the
economy dramatically declined, so did hours worked. However, hours declined
at a slower rate than output which led to labor productivity declines among
12 of 21 major industries, the most since the Great Recession. 
(See table 5.)

Changes in total factor productivity and combined KLEMS inputs help to explain
labor productivity changes. Labor productivity can be expressed as the sum
of six components: total factor productivity growth (TFP), contribution of
capital intensity, contribution of labor composition, contribution of 
energy intensity, contribution of materials intensity, and the contribution
of purchased business services intensity. The contribution of each KLEMS 
input is defined as the ratio of the services provided by that input to 
hours worked in the production process, weighted by its share of sectoral
output. Examining input contributions and TFP changes reveals the 
substitution effect of increased use of an input relative to labor on an 
industry’s labor productivity. (See table 5.) 

Of the 12 industries with labor productivity declines, TFP was the largest
contributor to this decline in all but two industries (utilities and finance 
and insurance). The largest contributor to the decline in the utilities and
finance and insurance industries was purchased business services intensity.
The contribution of energy intensity was negative for all but one of these
industries (finance and insurance). The contribution of purchased business
services intensity was negative for all but one of these industries as well
(other services, except government). A negative contribution for an input of
K, E, M, and S, indicates that this input declined faster than hours worked.
The contribution of capital intensity was positive for most industries, 
keeping labor productivity from declining further.   

The sixth component of labor productivity, labor composition, was a positive 
contributor to labor productivity in 16 of 21 major industries. The labor 
composition index estimates the effect of shifts in the composition of the 
workforce on hours worked, using information on age, education, gender, and
relative wages. As industries cut hours, the composition of the workforce 
shifted toward more experienced workers, increasing the average wage of the
industry, and having a positive impact on labor productivity.
TFP and input contributions to output 

The large TFP and labor productivity declines among industries in 2020 led to
an overall decline in output for the private business sector. The nation's 
output can be viewed as the sum of three components: total factor 
productivity, contribution of capital services, and contribution of labor 
input. TFP contributed 3.38 percentage points of the decline in output, 
while labor input contributed 2.64 percentage points of the decline. These 
one-year declines are larger than the two years of combined declines in 
output experienced during the Great Recession of 2008-09. Notice that at the
onset of the Great Recession in 2008, TFP was the predominant contributor to
negative output, but as the recession continued into 2009, labor input 
became the primary negative driver.

The private business sector can be divided into four sectors: goods producing;
information and communication technology (ICT); finance, insurance, and real 
estate (FIRE); and service providing. These sectors further explain how the 
economic losses experienced in the U.S. in 2020 differ from the Great Recession 
of 2008 and 2009, with regard to the negative impact of TFP and labor input and
the positive contribution of capital services. (See footnotes after table 7 
for industry makeup of each sector.)

TFP contribution

The negative total factor productivity contribution of 3.38 percentage points
to private business output in 2020 was widespread, with all four sectors 
experiencing negative contributions, led by the service providing sector
which had a negative contribution of 2.37 percentage points. Among the service
providing sector, transportation and warehousing and health care and social 
assistance were the main downward drivers both with a negative 0.62 percentage
point contribution. Accommodation and food services also experienced a large
decline of 0.46 percentage point. By contrast, during the Great Recession,
the goods producing sector made the largest negative contribution 
(-0.81 percentage point) to TFP growth. (See tables 6 and 7.) 

Labor contribution

In 2020, labor input had a negative contribution to private business output,
with declines in three of the four aggregated sectors. The service providing 
sector had the largest negative contribution in 2020
(-2.01 percentage points),led by accommodation and food service 
(-0.58 percentage point) and professional and technical services 
(-0.29 percentage point). By contrast, the largest negative labor 
contribution to output during the Great Recession came from the goods 
producing sector (-1.19). Of note is the different behavior of the FIRE
sector during 2020 and the Great Recession. This sector had a small positive
contribution of 0.12 percentage point in 2020 compared to a negative 
contribution of 0.19 percentage point in 2008-09. 
(See tables 6 and 7.)

Capital contribution

Capital services positive contribution to output in 2020 kept output from
declining faster. Capital services positive contribution in 2020 and during 
the Great Recession reflects the stability of capital stock during downturns.
All sectors demonstrated a positive contribution of capital to output during 
both 2020 (0.95 percentage point) and the Great Recession 
(0.62 percentage point)  but it was the large contributions of the FIRE and
ICT sectors that led to the greater contribution of capital in 2020. The 
0.26 percentage point contribution of the FIRE sector was driven by the 
finance and insurance industry with a contribution of 0.19 percentage point. 
During the Great Recession this industry only had a contribution of 0.02 
percentage point. (See table 6 and 7.) The ICT sector increased
its contribution of capital to output from 0.18 percentage point during the 
Great Recession to 0.25 percentage point.
Last Modified Date: November 18, 2021