The measures of both output and labor input differ at the private business/private nonfarm business level versus the manufacturing sector. As a result, the measures of total factor productivity are conceptually somewhat different for these sectors. To summarize: Total factor productivity for the private business/private nonfarm business sectors relates value-added output to the combined inputs of capital and labor hours. Total factor productivity for the manufacturing sector and manufacturing industries relates sectoral output to the combined inputs of capital, labor hours, and intermediate inputs.
Output for the private business/private nonfarm business sectors is measured as “value-added” output. Value-added output is defined as the total value of goods and services sold in final-demand markets. In other words, the value of goods and services that are used in the production process of other goods and services (known as “intermediate inputs”) are subtracted from the total amount of goods and services produced to determine value-added output.
For the manufacturing sector and manufacturing industries, output is defined as “sectoral output.” Sectoral output is defined as the total value of goods and services sold outside the industry/sector. Sectoral output includes goods and services sold to both final consumers as well as other businesses outside the industry/sector.
The measurement of labor input for the private business/private nonfarm business sectors includes an adjustment for the effect of changing labor composition (which is a measure of the level of skill of the workforce). For the manufacturing sector and manufacturing industries, labor input is a direct aggregate of hours, and changes in labor composition are not measured.