Labor Productivity for Selected Service-Providing Industries

On June 27, 2024, the Bureau of Labor Statistics (BLS) updated measures for 30 detailed industries in Productivity and Costs by Industry: Selected Service-Providing Industries - 2023. Chart 1 displays the seven detailed service-providing industries that recorded labor productivity growth of greater than 5.0 percent.

This webpage examines two industries that were among the largest gainers for both productivity and output in 2023: natural gas distribution (and the broader utilities industry group) and gambling industries. Over the last several years, external market conditions have been particularly dynamic in both the utilities sector and gambling industries. Output growth in 2023 can largely be explained in the context of these market environments. In natural gas distribution, changes in commodity prices were the largest factor contributing to output growth. Conversely, output growth in gambling industries has been predominantly catalyzed by changes in state-level regulation and legislation.

Natural Gas Distribution / Utilities

The utilities industry group contains electric power generation, transmission and distribution (NAICS 2211), natural gas distribution (NAICS 221210), and water, sewage and other systems (NAICS 2213). The 2023 services update revealed interesting movements in all three industries, highlighted by activity in natural gas distribution. As shown in Chart 2, labor productivity in Utilities is up 1.2 percent due to a 2.3 percent rise in output outpacing the 1.1 percent uptick in hours growth. Historically, labor productivity volatility in this group has flattened out over time, but natural gas distribution still shows sharp swings that the other two industries do not. A possible explanation for this lies in its relative exposure to its headliner commodity: natural gas.^[1] 

Natural gas prices fell precipitously in 2023, leading to one of the most noteworthy changes in industry productivity. As shown in Chart 3, natural gas prices tanked 28.3 percent in 2023. This comes after posting a 47.4 percent increase in 2021 and a 32.3 percent increase in 2022. This price dive is paired with a 22.2 percent output gain and a record 22.9 percent productivity gain. To put this in context, the other component utility industries recorded modest price increases: electricity prices are up 3.4 percent in 2023, slowing down but still growing from a 12 percent gain in 2022; water and sewage prices are up 4.7 percent in 2023.

Apart from natural gas distribution, utility prices have continued on a mostly steady path upwards since 1987. Prices in power generation and supply follow a similar trend to those in natural gas distribution, but with less extreme volatility. Water, sewage and other systems is by far the most uniform utility of the three. Prices have never declined since the series began in 1987 and the largest price swing was a 7.4 percent rise in 2010 (See Chart 4).

Unit labor costs measure employee compensation per unit of output. Another way to express unit labor costs is compensation per hour divided by output per hour. When output per hour (labor productivity) rises quickly, unit labor costs tend to decrease. This is precisely what happened in natural gas distribution where unit labor costs fell 12.5 percent in 2023. Natural gas distribution was the only utility to record unit labor costs declines in 2023. This was the largest decline in any utility over the course of the series. This decrease was a reversal from 2022 (+4.9 percent) and 2021 (+16.5 percent). In contrast, overall utility unit labor costs increased 5.6 percent.

Gambling Industries

Gambling industries (NAICS 7132) hit the jackpot of labor productivity in 2023, achieving a dazzling 7.2 percent annual growth rate. A 13.3 percent jump in real output trailed distantly by a 5.7 percent increase in hours worked was a winning combination for productivity growth in 2023. But this latest year of growth is hardly a break from the recent trend in this industry. Gambling industries posted positive productivity growth every year for the past seven years, with double digit growth in four of those years.

The productivity growth trend in gambling industries can be traced back to 2018. In May of that year, the Supreme Court ruled to overturn the Professional and Amateur Sports Protection Act (PAPSA), a piece of legislation that had previously prohibited states (except Nevada) from legalizing sports betting. Since this ruling, 38 states and the District of Columbia have passed legislation to legalize some form of sports betting activity, with 30 states and the District of Columbia also legalizing mobile or online sports betting.^[2]

This change in legislation has been an ace in the hole for gaming industries. From 2017 to 2023, output vaulted a cumulative 62.8 percent, achieving an 8.5 percent annual rate during this period.^[3] To put this in context, from the beginning of the series in 1997 to 2017, real output in this industry only increased 28.2 percent. Notably, labor hours have not shown the same historic growth as output, falling 9.5 percent since 2017. This combination of historic output growth and falling labor hours has left gambling industries flush with productivity growth. Since 2017, productivity increased cumulatively by 79.9 percent, equivalent to an annual rate of 10.3 percent per year.

Both employment and hours worked fell substantially in 2020 during the COVID-19 recession. Although these series have since rebounded, both remain below their 2017 levels: hours by 9.5 percent and employment by 3.3 percent. The lackluster rebound in employment may be because much of the growth in revenue has come from online or mobile gaming. Prior to the change in legislation, revenue from online gaming only accounted for a miniscule share of revenue, but by 2023 it made up nearly a quarter of commercial gaming revenue.^[4] Compared to a live gaming environment with card dealers, slot machine technicians, security guards, and janitors, online gaming requires a fraction of the labor to produce the same output.

Although there may be fewer employees working in gambling industries, it appears they are cashing in on higher wages and compensation. Since 2017, total compensation has grown 37.0 percent and hourly compensation has vaulted 51.4 percent (As shown in Chart 9). Nonetheless, the growth in output has still far surpassed this growth in compensation, driving unit labor costs down 15.8 percent. So even with higher wages and compensation, the labor cost of each unit of output is less than it was in 2017. 

Related resources

Industries at a Glance: Service-Providing Industries

Notes

Last Modified Date: August 16, 2024