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Economic News Release

Total factor productivity, 2020

For release 10:00 am    (ET) Tuesday, March 23, 2021	USDL-21-0547
Technical information:	(202) 691-5606  •  •
Media contact:	        (202) 691-5902  •


Private nonfarm business sector total factor productivity decreased 1.7 percent 
in 2020, the U.S. Bureau of Labor Statistics reported today. (See table A.) 
This 2020 decrease reflects a 4.2-percent decrease in output and a 2.5-percent 
decrease in the combined inputs of capital and labor. Capital services grew by
2.4 percent and labor input–which is the combined effect of hours worked and 
labor composition–decreased by 5.2 percent. (See table 1.) //PROD3 QCT Resilio Test 09/29/2023// 

Total factor productivity (TFP) is calculated by dividing an index of real 
output by an index of combined units of labor input and capital services. 
Total factor productivity annual measures differ from BLS quarterly labor
productivity (output per hour worked) measures because the former also 
includes the influences of capital services and shifts in the composition of
workers. Measures for the most recent year of this release are preliminary 
estimates.  See the Technical Notes for additional information.

Private business sector total factor productivity also decreased 1.7 percent 
in 2020, as output decreased 4.1 percent and combined inputs decreased 2.4 
percent. (See table A, table 2.) 

Total factor productivity

The 1.7-percent decline in nonfarm private business sector TFP in 2020 was the
result of combined inputs decreasing  (-2.5 percent) less than the decrease
in real value added output (-4.2 percent). The 1.7-percent decline in TFP is 
the largest decline in the measure since the Great Recession period of 2007-09,
which is also the last time both private nonfarm business output and private 
nonfarm business combined inputs decreased. 

The components of combined inputs can be broken down into capital services, 
hours worked, and labor composition. The 2020 capital services growth of 2.4 
percent was similar to the Great Recession’s capital services growth of 2.0 
percent. Hours worked experienced its largest decline since 2009 at 6.5 
percent. Labor composition in 2020 had a record growth of 1.6 percent which 
outpaced the 2007-09 recessionary growth by almost a full percentage point.

Labor Productivity Trends

Labor productivity growth can be viewed as the sum of three components: 
total factor productivity growth, the contribution of capital intensity, 
and the contribution of shifts in the composition of labor. In 2020, 
private nonfarm business labor productivity increased 2.5 percent, the 
highest since a 3.4-percent increase in 2010. 

For private nonfarm business in 2020, the contribution of capital intensity 
to labor productivity was 3.3 percentage points, the largest contribution 
in the history of the series which began in 1948. Capital intensity is 
the ratio of capital services to hours worked in the production process. 
The higher the capital to hours ratio, the more capital intensive the
production process is. The 2020 increase in the contribution of capital 
intensity was due to a 6.5-percent decline in hours worked. 

The contribution of labor composition of 1.0 percentage points in 2020 is 
the largest annual contribution to labor productivity since the series began 
in 1948. The labor composition index estimates the effect of shifts in the age,
education, and gender composition of the workforce on hours worked. The 2020 
growth in the contribution of labor composition was again due to the large 
hours decline of 6.5 percent and a shift in the composition of the workforce 
to older and more educated employees.

Capital Services Trends

Capital services in the private nonfarm business sector increased at an average
annual rate of 3.0 percent in 2019, the latest year of available detailed 
capital data. This was the largest single year of growth since 2015 when 
capital services grew 3.1 percent. The high capital services growth in 2019
was driven by intellectual property products and equipment. Intellectual 
property products grew 5.8 percent in 2019, larger than the average annual 
growth rate of 4.5 percent in the 2007-19 business cycle. Equipment grew 3.6 
percent in 2019, slightly higher than the 2007-19 business cycle average annual
growth rate of 3.2 percent. (See table C.)

The 2007-19 business cycle continued the slowdown in capital services growth. 
Its average annual growth rate of 2.4 percent is almost half of the peak
average annual growth rate of 4.7 percent in the 1990-2000 business cycle, 
and 1.1-percentage points lower than the previous 2000-07 business cycle. 
(See table C.)

Last Modified Date: September 29, 2023