Technical Note

Labor Productivity

	Industry labor productivity measures describe the relationship 
between industry output and the labor time involved in its production.  They show the 
changes from period to period in the amount of goods and services produced per hour.  
Although labor productivity measures relate output to the hours of all persons in an 
industry, they do not measure the specific contribution of labor or any other factor of 
production.  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 service inputs, including contract employment services; the organization of 
production; managerial skill; and the characteristics and effort of the workforce.
       Long-term productivity trends tend to be more reliable indicators of industry 
performance than are year-to-year changes.  The annual changes in an industrys output 
and use of labor may reflect cyclical changes in the economy as well as long-term trends.  

Output

	Industry output is measured as sectoral output, the value, in real terms, of goods 
and services produced for sale outside the industry.  Industry output measures for the 
trade and food services and drinking places industries are constructed by deflating 
nominal dollar revenues from the Bureau of the Census, U.S. Department of Commerce, 
with price indexes primarily from BLS.
 
Labor Hours

	The primary source of industry employment and hours data is the BLS 
Current Employment Statistics (CES) survey.  The CES provides monthly data on the 
number of total and nonsupervisory worker jobs held by wage and salary workers in 
nonfarm establishments, as well as data on the average weekly hours of nonsupervisory 
workers in those establishments.  Data from the Current Population Survey (CPS) are 
used to supplement the CES data.  The industry productivity program estimates the 
average weekly hours of supervisory workers for each industry using data from the CPS 
together with the CES data.  Data from the CPS are also used to estimate the employment 
and hours of self-employed and unpaid family workers in each industry.  Hours of all 
workers in an industry are treated as homogeneous and are directly aggregated.

Unit Labor Costs

	Unit labor costs represent the cost of labor required to produce one 
unit of output.  Indexes of unit labor costs are computed by dividing an index of 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.
	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 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.