Summary of Methods
Last Modified Date: October 30, 2020
Summary of Methods
The methodology for preliminary estimates is discussed in
“Preliminary estimates of multifactor productivity growth” located
at http://www.bls.gov/opub/mlr/2005/06/art3abs.htm. This release uses a
methodology for preliminary estimates that uses data that are available
shortly after the end of the calendar year. The methodology is a simplified
version of the full methodology that BLS uses when more detailed information
is available. Preliminary estimates for the private nonfarm business sector
are produced using the same methodology as that used for the production of
estimates for the private business sector; the only difference is that the
farm sector is excluded.
Capital Input: Capital input measures the services derived from the stock
of physical assets and software. The assets included are computers, software,
communications and other information processing equipment, other fixed
business equipment, structures, inventories, rental residences, and land.
Investments, depreciation, capital income, and rental prices are estimated
for each of these eight aggregates. Rental prices reflect the nominal rates
of return and the rates of economic depreciation and revaluation for the
specific asset. Rental prices are adjusted for the effects of taxes. Data
on investments in physical assets are obtained from the Bureau of Economic
Analysis (BEA). Capital input measures constructed for the preliminary MFP
measures are based on less detail than those for the full MFP measures.
Labor Input: Labor input in private business and private nonfarm business
is obtained by chained superlative (Tornqvist) aggregation of the hours at
work by all persons, classified by age, education, and gender with weights
determined by their shares of labor compensation. Hours paid of employees
are largely obtained from the Current Employment Statistics program (CES).
These hours of employees are then converted to an at-work basis by using
information from the Employment Cost Index (ECI) of the National Compensation
Survey (NCS) and the Hours at Work Survey. Hours at work for nonproduction
and supervisory workers are derived using data from the Current Population
Survey (CPS), the CES, and the NCS. The hours at work of proprietors, unpaid
family workers, and farm employees are derived from the Current Population
Survey. Hours at work data reflect Productivity and Costs data as of the
March 5, 2009 news release. Therefore it reflects the benchmark revisions
to the CES and other revisions to hours released on February 6, 2009. The
preliminary estimate of the 2008 labor composition index assumes that relative
wages across groups remained constant between 2007 and 2008. The growth rate
of labor composition is defined as the difference between the growth rate of
weighted labor input and the growth rate of the hours of all persons.
Additional information concerning data sources and methods of measuring labor
composition can be found in BLS Bulletin 2426 (December 1993),
"Labor Composition and U.S. Productivity Growth, 1948-90."
Combined Inputs: Labor and capital input are combined using Tornqvist weights
that represent each component's share of total costs. Total costs are defined
as the value of output (Gross Product Originating) less a portion of taxes
on production and imports. Most taxes on production and imports, such as
excise taxes, are excluded from costs; however, property and motor vehicle
taxes remain in total costs. The index uses changing weights: The share in
each year is averaged with the preceding year's share.
Output: This release presents data for the private business and private
nonfarm business sectors. The private business sector, which accounted for
approximately 77 percent of gross domestic product in 2000, includes all of
gross domestic product except the output of general government, government
enterprises, non-profit institutions, the rental value of owner-occupied
real estate, and the output of paid employees of private households.
Additionally, the private nonfarm business sector excludes farms from the
private business sector, but includes agricultural services. Multifactor
measures exclude government enterprises, while the BLS quarterly Productivity
and Cost series include them.
Multifactor Productivity: Multifactor productivity measures describe the
relationship between output in real terms and the inputs involved in its
production. They do not measure the specific contributions of labor,
capital, or any other factor of production. Rather, multifactor productivity
is designed to measure the joint influences of output, capital, and labor on
economic growth of technological change, efficiency improvements, returns to
scale, reallocation of resources due to shifts in factor inputs across
industries, and other factors.
The multifactor productivity indexes for private business and private nonfarm
business are derived by dividing an output index by an index of labor input
and capital services. The output indexes are computed as chained superlative
indexes (Fisher Ideal indexes) of components of real output. BLS adjusts BEA
output measures to remove the output of government enterprises.