Technical Note Labor Productivity The 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 the labor productivity measures relate output to hours of employees or 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 services 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 the performance of an industry than are year-to-year changes. The annual changes in an industry’s output and use of labor may reflect cyclical changes in the economy as well as long-term trends. Output Industry output is measured as an annual-weighted index of the changes in the various products or services (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. 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 primarily from BLS. Output measures for some mining and utilities industries are based on physical quantity data from the Energy Information Administration, U.S. Department of Energy, while output measures for some transportation industries are based on physical quantity data from the Bureau of Transportation Statistics, U.S. Department of Transportation. Other data sources for some industries include the U.S. Geological Survey, U.S. Department of the Interior; the U.S. Postal Service; the Federal Deposit Insurance Corporation; and the Postal Rate Commission. 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. CES data are supplemented or further disaggregated for some industries using data from the BLS Quarterly Census of Employment and Wages (QCEW), the Bureau of the Census, or other sources. Data from the Current Population Survey (CPS) are also 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. Other sources of employment and hours data for some service industries include the American Association of Railroads, the U.S. Department of Transportation, and the U.S. Postal Service. 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 input required to produce one unit of output. The unit labor cost indexes 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.