Technical note

                                       Technical Note

Labor Productivity: Labor productivity describes the relationship between real 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 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 for data in
this release is derived by deflating nominal sales or values of production using price indexes. 
Industry output measures are constructed primarily using data from the economic censuses and annual 
surveys of the U.S. Census Bureau, U.S. Department of Commerce, together with information on price 
changes from BLS.  

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 production workers, 
CPS data on hours of nonproduction, self-employed, and unpaid family workers, and ratios of hours 
worked to hours paid based on data from 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, U.S. Department of Commerce.