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 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.