Summary of Methods

The methodology for preliminary estimates is discussed in “Preliminary
estimates of multifactor productivity growth” located at
http://www.bls.gov/opub/mlr/2005/06/art3abs.htm.  This release uses a 
methodology for preliminary estimates that uses data that are available 
shortly after the end of the calendar year.  The methodology is a simplified
version of the full methodology that BLS uses when more detailed information
is available.  Preliminary estimates for the private nonfarm business sector
are produced using the same methodology as that used for the production of 
estimates for the private business sector; the only difference is that the 
farm sector is excluded.  

Capital Input:   Capital input measures the services derived from the stock
of physical assets and software.  The assets included are computers, 
software, communications and other information processing equipment, other
fixed business equipment, structures, inventories, rental residences, and 
land.  Investments, depreciation, capital income, and rental prices are 
estimated for each of these eight aggregates.  Rental prices reflect the 
nominal rates of return and rates of economic depreciation and revaluation 
for the specific asset.  Rental prices are adjusted for the effects of taxes.
Data on investments in physical assets are obtained from BEA.  Capital input
measures constructed for the preliminary MFP measures are based on less detail
than those for full MFP measure. 

Labor Input:    Labor input is total hours worked multiplied by a labor 
composition index.  Hours paid of employees are largely obtained from BLS’s 
Current Employment Survey (CES).  These hours of employees are then converted
to an at-work basis by using information from the Employment Cost Index (ECI)
of the National Compensation Survey (NCS) and the Hours at Work Survey.  
Hours at work for non-production and supervisory workers are derived using 
data from the CPS, the CES, and the NCS.  The hours at work of proprietors, 
unpaid family workers, and farm employees are derived from the Current 
Population Survey. 

The labor composition index estimates the effect of shifts in the experience, 
education, and gender composition of the work force on the efficiency of labor
and multifactor productivity growth.  The preliminary MFP labor composition 
measure estimates the number of hours worked by each type of worker based on 
CPS data.  The estimate of the 2007 labor composition index assumed that 
relative wages across groups remained constant between 2006 and 2007.  
The sum over all groups of the hour’s growth rates multiplied by the labor  
cost shares gives the growth in adjusted labor input.  Subtracting this from 
the growth in total (un-weighted) hours yields the growth in labor 
composition.

Additional information concerning data sources and methods of measuring labor 
composition can be found in BLS Bulletin 2426 (December 1993), 
"Labor Composition and U.S. Productivity Growth, 1948-90." 
http://www.bls.gov/mfp/home.htm

Combined Inputs:  Labor and capital input are combined using a Tornqvist 
index.  Growth rates of labor and capital input are combined with weights that 
represent each component's share of total costs.  Total costs are defined as 
the value of output (Gross Product Originating) 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.  The index uses changing weights: The share in each 
year is averaged with the preceding year's share.

Output:  This release presents data for the U.S. private business sector.  
The private business sector, which accounted for approximately 77 percent 
of gross domestic product in 2000, includes all of gross domestic product 
except the output of general government, government enterprises, non-profit 
institutions, the rental value of owner-occupied real estate, and the output 
of paid employees of private households.  Multifactor productivity measures 
exclude government enterprises, while the BLS quarterly Productivity and Cost
series include them. 
 
Multifactor Productivity: The multifactor productivity indexes for private 
business and private nonfarm business are derived by dividing an output 
index by an index of labor input and capital services.  The output indexes 
are computed as chained superlative indexes (Fisher Ideal indexes) of 
components of real output.  BLS adjusts BEA output measures to remove the
output of government enterprises.