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; managerial skill; in addition to the characteristics and effort of the workforce.

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 lower unit 
labor costs. 

Output:  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 reflects sectoral value of production, derived 
by adjusting shipments for changes in inventories and removing intra-industry transactions. Industry 
output measures are constructed primarily using data from the economic censuses and annual surveys of 
the Census Bureau, U.S. Department of Commerce, together with data on price changes primarily from 
BLS.  The 2012 estimates are constructed with data on industrial production from the Federal Reserve 
and manufacturers’ shipments, inventories, and orders from the Census Bureau.

Labor Hours:  Labor hours reflect annual hours worked by all employed persons in an industry.  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 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. 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 2012 are constructed using data from the BLS Quarterly Census of Employment and 
Wages (QCEW).

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Last Modified Date: March 27, 2014