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Technical Notes
The comparisons in this release are based on data available to
the Bureau of Labor Statistics as of the end of January 2009 from the
national statistical offices of the 17 economies compared.
Definitions. Labor productivity is defined as real output per
hour worked. Although the labor productivity measure presented in
this release relates output to the hours worked of persons employed
in manufacturing, it does not measure the specific contributions of
labor as a single factor of production. Rather, it reflects the joint
effects of many influences, including new technology, capital
investment, capacity utilization, energy use, and managerial skills,
as well as the skills and efforts of the workforce.
Unit labor costs are defined as the cost of labor input required
to produce one unit of output. They are computed as compensation in
nominal terms divided by real output. Unit labor costs can also be
computed by dividing hourly compensation by output per hour, that is,
by labor productivity.
Methodology. BLS constructs trends of manufacturing labor
productivity and unit labor costs from three basic aggregate
measures: output, total labor hours, and total compensation. The
hours and compensation measures, as well as the employment 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.
In general, the measures relate to total manufacturing as defined
by the International Standard Industrial Classification (ISIC).
However, the measures for France include parts of mining. Data for
the United States are in accordance with the North American Industry
Classification System (NAICS 97), except compensation data before
1987. Canadian data are in accordance with NAICS 97 starting in 1961.
The data for the most recent years are based on the United
Nations System of National Accounts 1993 (SNA 93). For earlier years,
data were compiled according to previously used systems.
To obtain historical time series, BLS may link together data
series which were compiled according to different accounting systems
by national statistical offices.
Output. For most of the economies, the output measures are real
value added in manufacturing, based on 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.
Most economies now estimate manufacturing real output using
moving price weights, as recommended by SNA 93. 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). Taiwan and Korea
still use fixed price weights to estimate real output.
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Measures of real output also may differ among economies because
of different approaches to quality adjustments.
For the United States, the output measure for the manufacturing
sector is a chain-weighted index of real gross product originating
(deflated value added) produced by the Bureau of Economic Analysis
(BEA) of the U.S. Department of Commerce. For more information on the
U.S. measure, see "Improved Estimates of Gross Product by Industry
for 1947-98," Survey of Current Business, June 2000, pp. 24-38 and
"Gross Domestic Product by Industry for 1947-86. New Estimates Based
on the North American Industry Classification System," Survey of
Current Business, December 2005, pp. 70-84.
The U.S. manufacturing 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. The international comparisons program uses a
value added output concept, while the major sector series is on a
sectoral output basis. Sectoral output is gross output less intra-
sector sales and transfers. The U.S. major sector productivity and
costs measures can be found at http://www.bls.gov/lpc/home.htm. For
information on sectoral output, see "Measurement of productivity
growth in U.S. manufacturing," Monthly Labor Review, July 1995, pp.
13-28.
Value added measures have been used for the international
comparisons series because the data are more readily available from
the economies' national accounts, whereas sectoral output would
require a complex estimation procedure. Even though 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 economies in the extent
of vertical integration of industries.
Labor Input. For the most recent years, the term "hours" refers
to hours worked. For some earlier years, BLS uses other hours
measures.
For the United States, the employment and hours data series
beginning with 1987 are taken from the NAICS-based manufacturing all-
employed series published by BLS as part of the major sector
productivity and cost measures. For the period before 1987, these
series are linked to NAICS-based, employees-only data from the
Current Employment Statistics (CES) program.
For most other economies, recent years' aggregate hours series
are obtained from national statistical offices, usually from national
accounts. However, for some earlier years, BLS calculates the
aggregate hours series using employment figures published with the
national accounts, or other comprehensive employment series, and data
on average hours worked.
Compensation (Labor Cost). The compensation measures are from
national accounts. 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.
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Labor cost is defined as compensation plus employment taxes minus
employment subsidies, i.e. the cost to employers of using labor. For
most economies, labor cost is the same as compensation. However, for
Australia, Canada, France, Singapore, 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.
Data for Germany. German data prior to 1991 pertain to the former
West Germany. The data series are linked in 1991.
Data for Australia. Australian data are published by fiscal
years, which run from July 1 through June 30. The Australian Bureau
of Statistics provides unpublished calendar-year data for real value
added, employment, and hours worked. For compensation, BLS estimates
calendar-year series using two-year moving averages of the data for
fiscal years. Manufacturing compensation data are not available for
years prior to 1990.
Data for Recent Years. The measures for recent years may be
estimates based on various current indicators until national accounts
and other preferred statistics become available.
Trade-Weighted Measures. The trade weights used to calculate the
relative unit labor cost indexes of the United States and the other
economies are based on the relative dollar value of U.S. trade in
manufactured commodities (exports plus imports) with each economy in
2007. The trade data are compiled by the U.S. Census Bureau.
The following weights were used for the entire period for which
trade-weighted unit labor cost measures are produced:
Weight Weight
Canada 36.12 Germany 10.64
Japan 16.00 Italy 3.54
Korea 6.09 Netherlands 3.68
Taiwan 4.84 Norway 0.54
Belgium 3.02 Spain 1.36
Denmark 0.65 Sweden 1.42
France 4.82 United Kingdom 7.28
Level Comparisons. The BLS measures are limited to trend
comparisons. BLS does not prepare level comparisons of manufacturing
productivity and unit labor costs because of data limitations and
technical problems in comparing the levels of manufacturing output
among economies. Each economy measures manufacturing output in its
own currency units. To compare outputs among economies, a common unit
of measure is needed. Market exchange rates are not suitable as a
basis for comparing output levels. What is needed are purchasing
power parities, which are the number of foreign currency units
required to buy goods and services equivalent to what can be bought
with one unit of U.S. currency.
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Purchasing power parities, for most economies, are available for
total gross domestic product (GDP) from the Organization for Economic
Cooperation and Development (OECD). However, these parities are
derived for expenditures made by consumers, business, and government
for goods and services - not for value added by industry. Therefore,
they do not provide purchasing power parities by industry. The
parities developed for total GDP are not suitable for each component
industry, such as manufacturing.
European exchange rates. On Jan. 1, 1999, 11 European countries
joined the European Monetary Union (EMU). In subsequent years several
other European countries became EMU members. The euro, the official
currency of the EMU, was established at fixed conversion rates to the
previous national currencies of EMU members. Data on manufacturing
value added and labor compensation for euro-area countries are now
reported in euros.
In order to maintain historical continuity of data series, data
for euro-area countries for years before 1999 have been converted to
euros by applying the fixed euro/national currency conversion rates.
For countries and years where output, compensation, and exchange
rates are converted from national currency units into euros, the
following fixed conversion rates are used:
1 euro equals: 40.3399 Belgian francs 1936.27 Italian lire
6.55957 French francs 2.20371 Netherlands guilders
1.95583 German marks 166.386 Spanish pesetas
The currency exchange rates cited in this publication are annual
averages of daily buying rates in New York City.
