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 a state to hours worked of all persons in that state, 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. Output: Measures of output for the private nonfarm sector are created using GDP by state and industry data published by the Bureau of Economic Analysis (BEA). BEA does not produce a private nonfarm sector measure of real output by state. To create the necessary output series, several industry components are subtracted — the farm sector, private households, and owner-occupied housing — from GDP by state using a Fisher ideal index formula. Labor Hours: Hours are the number of hours worked by all employed persons, including wage and salary workers, self-employed persons, and unpaid family workers. Hours for wage and salary workers are primarily from BLS Current Employment Statistics (CES) and hours for self-employed and unpaid family workers are from the BLS Current Population Survey (CPS). The hours are adjusted from an hours paid basis to an hours worked basis using data from the BLS National Compensation Survey (NCS). 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. 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. Labor compensation measures are constructed using BEA nonfarm compensation less private household compensation. Compensation for self-employed and unpaid family workers are imputed by assuming that hourly compensation for these workers is the same as the average wage and salary worker in each state. Contributions to Labor Productivity: Each state’s contribution to national productivity growth is calculated by multiplying the state’s productivity growth rate by its average share of total current dollar national output. Adding up these contributions will approximate, but may not exactly equal, growth rates of national productivity. Contributions measures used in this release capture the effects of within-state productivity changes but do not include the effects of shifting shares of output and labor among states.