Internet address:http://www.bls.gov/mfp USDL 09-0480 Historical, technical For Release: 10:00 AM EDT information: (202) 691-5606 Wednesday, May 6, 2009 Media contact: (202) 691-5902 PRELIMINARY MULTIFACTOR PRODUCTIVITY TRENDS, 2008 Private Business Sector and Private Nonfarm Business Sector Multifactor productivity, defined as output per combined units of labor and capital inputs, grew at an annual rate of 1.2 percent in the private business sector and 1.1 percent in the private nonfarm business sector for 2008, the Bureau of Labor Statistics (BLS) and the U.S. Department of Labor reported today. 2007-08 Private business sector 1.2 Private nonfarm business sector 1.1 The estimates of multifactor productivity in the private business and in the private nonfarm business sectors for 2008 both show the largest annual rates of growth since 2005. The 2007-08 annual changes are summarized in tables A and B. Table B also presents data showing historical trends. //PROD3 ZUNI3PO QCT Test 10302020// Multifactor productivity is designed to measure the joint influences of technological change, efficiency improvements, returns to scale, reallocation of resources, and other factors on economic growth while allowing for the effects of capital and labor. Multifactor productivity, therefore, differs from the labor productivity (output per hour worked) measures that are published quarterly by BLS since it includes information on capital services and other data that are not available on a quarterly basis. Additionally, multifactor productivity measures for the private business and private nonfarm business sectors account for shifts in the composition of labor. Estimates of labor composition are not included in the quarterly labor productivity measures. In private business and private nonfarm business, the change in multifactor productivity reflects the difference between the change in real gross domestic product for the sector and the change in labor and capital inputs engaged in the production of this output. The output measures for private business and private nonfarm business are similar to the indexes of output for business and nonfarm business used in the quarterly labor productivity measures differing only in that the output of government enterprises is omitted. A change in multifactor productivity reflects the change in output that cannot be accounted for by the change in combined inputs of labor and capital. In contrast, a change in labor productivity reflects the change in output that cannot be accounted for by a single factor--the change in hours of all persons engaged in production. Table A. Productivity and related data, percent changes 2007-08 Private Business1 Private Nonfarm Business1 Productivity Multifactor productivity2 1.2 1.1 Output per hour of all persons 2.7 2.8 Output per unit of capital services -2.1 -2.0 Output 0.8 0.8 Inputs Labor input3 -1.9 -1.8 Hours -1.9 -2.0 Labor composition4 -0.1 0.1 Capital services 2.9 3.0 Combined units of labor and capital inputs5 -0.3 -0.3 Analytic ratio: Capital services per hour of all persons 4.9 5.0 1 Excludes government enterprises. 2 Output per unit of combined labor and capital inputs. 3 Index of hours at work; hours at work by education and experience group are weighted by each group’s share of labor compensation. 4 Ratio of labor input to hours. 5 Labor input index combined with capital service input index, weighted by labor's and capital's shares of nominal output. Private business sector Chart 1 shows the annual indexes of multifactor productivity, output per hour worked, and output per unit of capital services during the 1987-2008 period for the private business sector. Over the last 21 years, capital services have grown more rapidly than hours in private business, and the skills of workers -- as measured by their age and education, which implicitly measure their work experience -- also have risen over this period. These shifts toward more capital intensive production and toward workers with more human capital have supplemented labor productivity growth, usually allowing output per hour to grow at a faster rate than multifactor productivity. Multifactor productivity rose 1.2 percent for the private business sector in 2008 (see table A). The multifactor productivity gain in 2008 reflected a 0.8-percent increase in output and a 0.3-percent decrease in the combined inputs of capital and labor. Capital services grew 2.9 percent. Labor input posted a decrease of 1.9 percent, as both hours worked and labor composition fell. Labor input reflects the change in hours at work adjusted for the effects of changing labor composition. The decrease of labor input was due mostly to a decrease in hours at work of 1.9 percent and a decrease in labor composition of 0.1 percent. The capital-labor ratio (capital services per hour of all persons) increased by 4.9 percent. Labor productivity (output per hour worked) increased 2.7 percent. Capital productivity (output per unit of capital services) fell 2.1 percent. As shown in table B, the contribution of labor composition was unchanged from 2007 to 2008, while the contribution of capital intensity growth gained 1.6 percent over the same period. Historical trends in labor productivity growth can be viewed as the sum of three components: multifactor productivity growth, the contribution of increased capital intensity, and the contribution of shifts in labor composition. Chart 2 clearly shows the major changes in the relative contributions of multifactor productivity and of capital intensity in the latter half of the 1990s. These contributions have continued to be relatively high for the 2000-2007 period and for 2007-2008. Private nonfarm business sector Multifactor productivity rose 1.1 percent for the private nonfarm business sector in 2008 (see table A). The multifactor productivity gain in 2008 reflected a 0.8-percent increase in output and a 0.3-percent decrease in the combined inputs of capital and labor. Capital services grew 3.0 percent. Labor input posted a decrease of 1.8 percent, as hours worked declined and labor composition rose slightly. The decrease of labor input was due to a decrease of 2.0 percent in hours at work and an increase of 0.1 percent in labor composition. The capital-labor ratio (capital services per hour of all persons) increased by 5.0 percent. Labor productivity (output per hour worked) increased 2.8 percent. Capital productivity (output per unit of capital services) fell 2.0 percent. The contribution of labor composition rose 0.1 percent, while the contribution of capital intensity growth gained 1.6 percentage points from the previous period (see table B). Table B. Compound average annual rates of growth in output per hour of all persons and the contributions of capital intensity, labor composition, and multifactor productivity, by major sector, selected periods, 1987-2008 (Percent per year) 1987-2008 1987-1990 1990-1995 1995-2000 2000-2007 2007-2008 Private business1 Output per hour of all persons 2.2 1.6 1.5 2.7 2.6 2.7 Contribution of capital intensity2 0.9 0.6 0.6 1.2 0.9 1.6 Contribution of labor composition3 0.3 0.4 0.5 0.2 0.2 0.0 Multifactor productivity4 1.1 0.6 0.5 1.3 1.5 1.2 Private nonfarm business1 Output per hour of all persons 2.2 1.5 1.6 2.5 2.5 2.8 Contribution of capital intensity2 0.9 0.6 0.6 1.2 0.9 1.6 Contribution of labor composition3 0.3 0.4 0.5 0.2 0.2 0.1 Multifactor productivity4 1.0 0.5 0.5 1.1 1.4 1.1 1 Excludes government enterprises. 2 Growth rate in capital services per hour multiplied by capital's share of current dollar costs. 3 Growth rate of labor composition (the growth rate of labor input less the growth rate of the hours of all persons) multiplied by labor's share of current dollar costs. 4 Output per unit of combined labor and capital inputs. Note: Multifactor productivity plus contribution of capital intensity and labor composition may not sum to output per hour due to independent rounding. Comprehensive tables containing additional data not included in this news release are available at http://www.bls.gov/mfp/mprdload.htm or in print upon request. Note: Multifactor productivity plus contribution of capital intensity and labor composition may not sum to output per hour due to independent rounding. Notes While capital services by major sector are estimated for 2008, these preliminary estimates do not include an update of capital services by asset type. Measures of capital services through 2007 can be found in tables 5 and 6 of “Multifactor Productivity Trends, 2007” located at http://www.bls.gov/news.release/archives/prod3_03252009.pdf. The data in this press release reflect updated methodology that was introduced in the March 25th, 2009 press release, “Multifactor Productivity Trends, 2007” located at http://www.bls.gov/news.release/archives/prod3_03252009.pdf. These data reflect updated and revised data sources, improved measures of rates of return on capital stock, and, to a larger extent, improved methodology in labor composition, described in “Changes in the Composition of Labor for BLS Multifactor Productivity Measures, 2007”, available at http://www.bls.gov/mfp/mprlabor.pdf.