Technical note

                                                 Technical Note

Labor Productivity: Labor productivity describes the relationship between output and the labor hours 
involved in its production. These measures show the changes from period to period in the amount of 
goods and services produced per hour worked. Although the labor productivity measures relate real 
output in an industry to hours worked of all persons in that industry, they do not measure the specific 
contribution of labor to growth in output. 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 services inputs, including contract employment services; the organization of 
production; the characteristics and effort of the workforce; and managerial skill. 

Unit Labor Costs: Unit labor costs represent the cost of labor required to produce one unit of output. 
The unit labor cost indexes are computed by dividing an index of nominal industry labor compensation 
by an index of real industry output. Unit labor costs also describe the relationship between compensation 
per hour worked (hourly compensation) and real output per hour worked (labor productivity). When 
hourly compensation growth outpaces productivity, unit labor costs increase. Alternatively, when 
productivity growth exceeds hourly compensation, unit labor costs decrease. 

Output: Industry output is measured as an annual-weighted index of the changes in the various products 
(in real terms) provided for sale outside the industry. Real industry output is usually derived by deflating 
nominal sales or values of production using BLS price indexes, but for some industries it is measured by 
physical quantities of output. Output is the measure of what is produced by an industry, derived by 
adjusting shipments for changes in inventories and removing intra-industry transactions. Industry output 
measures are constructed primarily using data from the economic censuses and annual surveys of the 
Census Bureau, U.S. Department of Commerce, together with data on price changes primarily from 
BLS. Data from the Bureau of Economic Analysis at the U.S. Department of Commerce is used in part 
to construct intra-industry transactions. Other data sources include the Energy Information 
Administration at the U.S. Department of Energy and the U.S. Geological Survey at the U.S. 
Department of the Interior. Manufacturing industry output for 2022 and 2023 is estimated based on 
historical relationships between BLS sectoral output, BLS price indexes, and data on industrial 
production from the Federal Reserve Board.

Labor Hours: Labor hours are measured as annual hours worked by all employed persons in an 
industry. Data on industry employment and hours come primarily from the BLS Current Employment 
Statistics (CES) survey and Current Population Survey (CPS). CES data on the number of total and 
production worker jobs held by wage and salary workers in nonfarm establishments are supplemented 
with CPS data on self-employed and unpaid family workers to estimate industry employment. Hours 
worked estimates are derived using CES and CPS employment, CES data on the average weekly hours 
paid of all employees, CPS data on hours of self-employed and unpaid family workers, and ratios of 
hours worked to hours paid based on data from both the CPS and the National Compensation Survey 
(NCS). For some industries, employment and hours data are supplemented or further disaggregated 
using data from the BLS Quarterly Census of Employment and Wages (QCEW), the Census Bureau, or 
other sources. Hours worked are estimated separately for different types of workers and then are directly 
aggregated; no adjustments for labor composition are made.

Labor Compensation: Labor 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 both 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. Industry compensation measures are constructed primarily using data from 
the BLS QCEW and the economic censuses of the Census Bureau at the U.S. Department of Commerce.

Annual Percent Change: The annual percent change is the change in a series from one year to the next 
as a percent of the series-value in the previous year. Over a period of more than one year, the annual 
percent change is the compound annual growth rate in an index series, or an annualized average growth 
rate. Because the change of an index series varies from year to year, the annual percent change for a 
long time period reflects the constant rate that can be applied to each year in a period, from the start to 
the end, that would give the same total result. It is calculated as (Ending Value/Starting 
Value)^(1/Number of Years)-1.