Total Factor Productivity in Major Industries – 2019

For release 10:00 a.m. (ET) Thursday, November 19, 2020	USDL-XX-XXXX
Technical information:(202) 691-5606 • productivity@bls.gov • www.bls.gov/mfp
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TOTAL FACTOR PRODUCTIVITY IN MAJOR INDUSTRIES – 2019 

Total factor productivity rose in 12 of the 20 industries measured in 2019,
the U.S. Bureau of Labor Statistics (BLS) reported today.  The largest annual
increases were in the mining, management of companies and enterprises, and 
utilities industries, with increases of 4.2 percent, 3.7 percent, and 3.0 
percent, respectively. (See chart 1 and table 1). In 2018, total factor 
productivity (TFP) increased in 14 of the 20 industries. 

Total factor productivity is defined as output per unit of combined inputs. 
TFP shows the relationship between real output and changes in the combined 
inputs of capital services, labor input, and intermediate purchases (energy,
materials, and purchased services) used in producing that output. It reflects
a variety of factors that influence economic growth not specifically 
accounted for among measured inputs, including: technological change, 
changes in the organization of production, and other efficiency 
improvements.  

The TFP increase in 2019 was dispersed among the 20 major industries measured.
TFP increases are most often achieved by the change in output outpacing the 
change in combined inputs, as with the mining industry in 2019 when output 
increased 6.5 percent and combined inputs increased 2.2 percent leading to 
an increase in TFP of 4.2 percent. However, TFP increases can also be 
achieved when the change in combined inputs declines more than the change
in output, as was the case with utilities. For this industry, combined inputs
declined 4.7 percent and output declined 1.8 percent, leading to a TFP 
increase of 3.0 percent. TFP declines occurs when the change in output is
less than of the change in combined inputs. Wholesale trade experienced 
the largest TFP decline in 2019 (-2.2 percent) as output declined 2.1 percent
and combined inputs grew at 0.1 percent.  
 
Total factor productivity and KLEMS as sources of labor productivity trends
Total factor productivity annual measures differ from BLS quarterly labor 
productivity, or output per hour measures, because the former also includes 
information on capital intensity, shifts in the composition of the workforce,
energy, materials, and purchased services. Labor productivity relates output
to only hours worked and is equal to total factor productivity plus the 
effects of factor substitution. Thus, an increase in labor productivity can 
be expressed as the sum of six components: 

•Total factor productivity (TFP)       •Contribution of energy (E)
•Contribution of capital intensity (K) •Contribution of materials (M)
•Contribution of labor composition (L) •Contribution of purchased services (S)

The contribution of each KLEMS input is definied as the ratio of the weighted
services provided by that input to hours worked in the production process. 
By examining input contributions the substitution effect of increased use of
an input on an industry’s labor producitivty can be measured.  

Chart 2 illustrates sources of labor productivity trends in 2019 for each 
industry. The information industry had the largest increase in labor 
productivity in 2019, increasing 6.6 percent, driven by an increase in 
capital of 2.9 percent. While the education industry had the largest decline
in 2019, decreasing 3.5 percent, driven by a 2.4-percent decline in services. 

TFP and input contributions to output 

The nation's output growth can be viewed as the sum of three components:
total factor productivity, and the contributions of capital services and 
labor input. In the most recent business cycle (2007-2019) the deceleration
of output was mainly driven by the deceleration in TFP and a modest 
deceleration of the use of capital services. 

Industry level data can be used to further explain any changes in the private
business sector output. Chart 4 aggregates industries into one of four 
sectors: goods producing, information communication technologies (ITC) 
finance, insurance, and real estate (FIRE); and service producing. 
(See technical note for industry makeup.)

TFP contribution

The contribution of total factor productivity growth to private business
output growth has declined from 1.12 percentage points in 2000-2007 to 0.33
percentage points in 2007-2019. This decline can be attributed to negative
contribution from manufacturing industries within the goods producing sector 
and a steep decline in ICT TFP contribution. Within ICT, computer and 
electronic products TFP has slowed substantially and now only contributes 
0.06 percentage points to private business output growth compared to 0.24 
percentage points in the previous business cycle.

Capital contribution

Capital services contribution to output growth gradually declined over the 
three business cycles, declining from 1.39 percentage points in 1990-2000 to 
0.83 percentage points in the current business cycle. The decline in the 
contribution of capital from both the services industry and the finance, 
insurance, and real estate (FIRE) sectors are the main drivers – as the fall
out of the financial crisis and housing collapse during the 2007-2009 period
impacted this sector.

Labor contribution
During the 2000-2007 business cycle, the contribution of labor input to
private business output growth declined over a full percentage point from
1.34 to just 0.23 percentage points. During the 2000-2007 business cycle 
labor input contributed -0.13 percentage points in goods producing industries
and -0.13 percentage points for ICT industries. During the 2007-2019 business
cycle labor input only contributed -0.01 percentage points to goods producing
industreis and 0.05 percentage points to ICT industries.