Bureau of Labor Statistics
Estimating ProceduresBecause statistical concepts and methods vary from country to country, international comparisons of statistical data can be misleading. BLS attempts to derive meaningful comparisons by selecting a conceptual framework for comparative purposes; analyzing foreign statistical series and selecting those which most nearly match the desired concepts; and adjusting statistical series, where necessary and feasible, for greater intercountry comparability. Productivity and unit labor costsThe Bureau of Labor Statistics constructs trends of manufacturing labor productivity, hourly compensation costs, and unit labor costs from three basic aggregate measures – output, total labor hours, and total compensation. The hours and compensation measures refer to employees (wage and salary earners) in Belgium and Taiwan. For all other economies, the measures refer to all employed persons, including employees, self-employed persons, and unpaid family workers. For all of the economies, the term "hours" refers to hours worked. Output: For most countries, the output measures are real value added in manufacturing from national accounts. However, output for Japan prior to 1970 and for the Netherlands prior to 1960 are indexes of industrial production. The manufacturing value added measures for the United Kingdom are essentially identical to their indexes of industrial production. The output measure for manufacturing in the United States is the chain-weighted index of real gross product originating (deflated value added), introduced by the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce in August 1996. Because these value added output data for U.S. manufacturing industries are not available for years prior to 1977, the comparative U.S. measures of output, output per hour, and unit labor costs begin with 1977. The U.S. output series used for international comparisons differs from the manufacturing output series that BLS publishes as part of its major sector productivity and costs measures for the United States. While both series are based on price weights that change annually, the international comparisons program uses a value added output concept, while the major sector series is on a sectoral output basis and begins with 1949. Sectoral output is gross output less intrasector sales and transfers. Value added measures have been used for the international comparisons series because the data are more readily available from the countries' national accounts, whereas sectoral output would require a complex estimation procedure. Also, although BLS has determined that sectoral output is the correct concept for U.S. measures of productivity, there are other considerations that may make value added a better concept for international comparisons of labor productivity, such as differences among countries in the extent of vertical integration of industries. Estimation of manufacturing real output using moving price weights, as recommended by SNA 93, is becoming prevalent. However, many earlier time periods within the historical real output series have been estimated using fixed price weights, with the weights updated periodically (for example, every 5 or 10 years). Measures of real output also may differ among countries because of different approaches to estimating the prices of high-technology products like computers and, in general, of products that undergo rapid quality change. Labor input: For the United States, the hours worked data are taken from the BLS major sector productivity program. The aggregate hours worked series used for France (from 1970 forward), Canada, Denmark, Norway, and Sweden are series published with the national accounts. For the former West Germany after 1959 and Germany from 1991, BLS uses a measure of aggregate hours worked that was developed by a research institute of the German Ministry of Labor for use with the national accounts employment figures. For the United Kingdom from 1992, an annual index of total manufacturing hours is used. For all other countries, the U.K. before 1992, and the former West Germany before 1959, BLS constructs its own estimates of aggregate hours, using employment figures published with the national accounts, or other comprehensive employment series, and estimates of average annual hours worked. The Italian hours worked series is based on estimates by the Bank of Italy. Compensation (Labor Cost): The compensation measures are from national accounts data and are in nominal terms. Compensation includes employer expenditures for legally required insurance programs and contractual and private benefit plans, in addition to all payments made in cash or in kind directly to employees. When data for the self-employed are not available, total compensation is estimated by assuming the same average compensation for the self-employed as for employees. Labor cost is defined as compensation plus employment taxes minus employment subsidies, i.e. the cost to employers of hiring labor. For most countries, labor cost is the same as compensation. However, for Australia, Canada, France, and Sweden, compensation is increased to account for important taxes on payroll or employment. For the United Kingdom, compensation is reduced between 1967 and 1991 to account for subsidies. Current indicators: The measures for recent years may be based on current indicators of output (such as industrial production indexes), employment, average hours, and hourly compensation until national accounts and other statistics, normally used for the long-term measures, become available. Trade-weighted measures: Since the economies covered differ greatly in their relative importance to U.S. trade in manufactured products, BLS constructs trade-weighted measures of unit labor costs to take account of these differences. The trade weights used were derived by rescaling weighting factors developed by the International Monetary Fund. These weights are based on aggregate trade data for total manufacturing and take account of both bilateral trade and the relative importance of "third country" markets. Two summary measures are constructed: "Competitors" indexes, which are the trade-weighted geometric averages of the indexes for competitor economies, and relative indexes, which are the ratios of the U.S. indexes to "competitors" indexes. Hourly compensation costsMeasures of hourly compensation costs are prepared by BLS in order to provide a better basis for assessing international differences in employer labor costs. Comparisons based on the more readily available average earnings statistics published by many countries can be very misleading. National definitions of average earnings differ considerably; average earnings do not include all items of labor compensation; and the omitted items of compensation frequently represent a large proportion of total compensation. Hourly compensation is defined as
In addition, for some countries, compensation is adjusted for other taxes on payrolls or employment (or reduced to reflect subsidies), even if they do not finance programs that directly benefit workers, because such taxes are regarded as labor costs. The BLS definition of hourly compensation costs is not the same as the International Labor Office (ILO) definition of total labor costs. Hourly compensation costs do not include all items of labor costs. The costs of recruitment, employee training, and plant facilities and services — such as cafeterias and medical clinics — are not included because data are not available for most countries. The labor costs not included account for no more than 4 percent of total labor costs in any country for which the data are available. The total compensation measures are computed by adjusting each country's average earnings series for items of direct pay not included in earnings and for employer expenditures for legally required insurance, contractual and private benefit plans, and other labor taxes or subsidies. For the United States and other countries that measure earnings on an hours-paid basis, the figures are also adjusted in order to approximate compensation per hour worked. Earnings statistics are obtained from establishment surveys of employment, hours, and earnings for most countries. Adjustment factors are obtained from periodic labor cost surveys and interpolated or projected to non-survey years on the basis of other information for most countries. The information used includes tabulations of employer social security contribution rates provided by the International Social Security Association, information on contractual and legislated fringe benefit changes from labor bulletins, and statistical series on indirect labor costs. For other countries, adjustment factors are obtained from surveys or censuses of manufactures or from reports on fringe-benefit systems and social security. For the United States, the adjustment factors are special calculations for international comparisons based on data from several surveys. Hourly compensation costs are converted to U.S. dollars using the average daily exchange rate for the reference period. The exchange rates used are prevailing commercial market exchange rates as published by either the U.S. Federal Reserve Board or the International Monetary Fund. Trade-weighted measures: Because the economies covered differ in their relative importance to U.S. trade in manufactured products, BLS constructs trade-weighted measures comprising all of the foreign economies covered and selected economic groups to take account of these differences. The trade weights used to compute the average compensation cost measures for selected economic groups are relative importances derived from the sum of U.S. imports of manufactured products for consumption (customs value) and U.S. exports of domestic manufactured products (free along side (f.a.s.) value) in 2004 for each country or area and each economic group. The trade data used to compute the weights are U.S. Bureau of the Census statistics of U.S. imports and exports converted to an industrial classification basis from data initially collected under the Harmonized Tariff Schedule commodity classification system. The trade-weighted average rates of change are computed as the trade-weighted arithmetic average of the rates of change for the individual countries or areas; the trade-weighted average hourly compensation costs are computed as the trade-weighted arithmetic average of cost levels for the individual countries or areas. Rates of change derived from the trade-weighted average hourly compensation cost levels need not be the same as the trade-weighted average rates of change. Labor force, employment, and unemployment Comparative labor force statistics improve the ability to assess differences in labor markets across countries. The Bureau of Labor Statistics adjusts published labor force statistics for selected foreign countries, where possible and necessary, to provide measures approximately consistent with U.S. definitions. These adjusted figures, based mainly on labor force surveys, provide a more precise basis for international comparisons of labor force, employment, and unemployment. The U.S. definitions that form the basis of the international comparisons are described below. Employed persons comprise all persons who, during the reference week,
Unemployed persons comprise all persons who had no employment during the reference week, were available for work, except for temporary illness, and were actively seeking work during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed. Adjustments to approximate U.S. concepts: The labor force data from other countries are adjusted as closely as possible to U.S. concepts. While the International Labor Office (ILO) has established guidelines for the measurement of labor force, employment, and unemployment, the United States Current Population Survey (CPS) does not follow all ILO guidelines. ILO guidelines can be accessed at the following web site: www.ilo.org/public/english/120stat/res/ecacpop.htm. Compared to the ILO guidelines, U.S. concepts are limited to the civilian population, maintain a stricter definition of job search, and define unpaid family workers as employed only for those persons who worked more than 15 hours a week. The ILO guidelines facilitate cross-country comparisons because they draw countries toward a common conceptual framework. However, the ILO guidelines provide options for measurement that countries apply in different ways, based on national circumstances and priorities. Also, some countries use administrative data, such as business registers and unemployment benefit claims measures, rather than the more comparable labor force surveys. In order to create meaningful comparisons, BLS starts with labor force survey data and adjusts the data of other countries to more closely approximate U.S. concepts. The foreign country data are adjusted as closely as possible to U.S. concepts. Although the U.S. lower age limit is 16 years, the age limit for other countries varies from 15 to 16 years. Differences in the concept of employment relate mainly to treatment of the Armed Forces, layoffs, and unpaid family workers. Adjustments are made where necessary to exclude the Armed Forces. No adjustment is made for the treatment of layoffs. For some countries, no adjustment is made for the treatment of unpaid family workers. Differences in the concept of unemployment relate mainly to persons waiting to start a new job and passive jobseekers. In the United States, persons waiting to start a new job are unemployed only if they were actively seeking work; otherwise, they are not in the labor force. In the other countries, persons waiting to start a new job are generally counted as unemployed. In the United States, job search must be active, such as placing or answering advertisements; simply reading ads is not enough to qualify as active job search. Canada and the European countries classify passive jobseekers as unemployed. An adjustment is made to exclude them in Canada, but not in the European countries, where the phenomenon is less prevalent. Australia and Japan exclude passive jobseekers, in accordance with the U.S. concept. These unadjusted differences have a negligible effect on the comparisons. For further information on comparability issues, see Constance Sorrentino, "International unemployment rates: how comparable are they?" Monthly Labor Review, June 2000, pp. 3-20, on the Internet at www.bls.gov/opub/mlr/2000/06/art1full.pdf. Breaks in series: The labor force data adjusted to U.S. concepts may have breaks in series due to changes in surveys, sources, or estimation methods. The data are not linked to produce a continuous time series. For the unemployment rate series, overlapping information is provided where possible in order to assist data users to construct time series. Real gross domestic product per capita and per employed personBLS measures of comparative trends of gross domestic product (GDP) per capita and per employed person are based on country measures of real GDP, population, and employment. BLS level comparisons of GDP, GDP per capita, and GDP per employed person are based on converting GDP into U.S. dollars using purchasing power parities (PPPs) for benchmark years and dividing by population and the number of employed persons. The benchmark PPPs are from the OECD and the Statistical Office of the European Communities (EUROSTAT) PPP Program. The benchmark figures are derived by comparing relative prices at detailed levels of expenditure (PPPs by item of expenditure) and aggregating these price relatives to derive overall PPPs for total GDP. Consumer pricesThe consumer price indexes are not adjusted for comparability except to convert them to a uniform base year. National differences exist, for example, with respect to population coverage, frequency of market basket weight changes, and treatment of homeowner costs. Background | Description of Methods | Data Sources | Estimating Procedures | Analysis and Presentation | Usage and Limitations
Last Modified Date: December 16, 2005 |
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