Frequently Asked Questions

• Productivity Comparisons
• Hourly Compensation Comparisons
• Labor Force and Unemployment Comparisons

Productivity Questions

What is productivity?

Productivity is a ratio relating output to one or more of the inputs associated with producing that output. An increase in output per unit of input is an increase in productivity. The most common productivity measure is labor productivity, which relates output to employment or labor hours. BLS has been publishing international comparisons of manufacturing labor productivity, as measured by output (value added) per hour worked, for many years.

There are multifactor productivity measures as well, where output is related to two or more inputs. BLS has produced a three-country comparison of manufacturing multifactor productivity, as measured by output (value added) per unit of combined labor and capital inputs. (See "Manufacturing Multifactor Productivity in Three Countries," PDF (2,123K) by Wolodar Lysko, Monthly Labor Review, July 1995, pp. 39-55.) A more inclusive productivity measure, used by BLS to compare component manufacturing industries within the United States, relates output, measured as gross output, to combined capital, labor, energy, material, and business services inputs (collectively identified by the acronym KLEMS).

What are unit labor costs?

Unit labor costs can be computed by dividing employer labor costs (payments made directly to workers plus employer payments into funds for the benefit of workers) by real value added output. Unit labor costs can also be computed by dividing hourly labor costs by output per hour. BLS publishes international comparisons of manufacturing unit labor costs along with its comparative labor productivity measures. The comparative unit labor cost measures are published in both national currency terms and in U.S. dollar terms. Comparative changes in unit labor costs in U.S. dollars show relative changes in competitiveness resulting from relative changes in currency exchange rates as well as relative changes in own-currency-based unit labor costs.

Do you have productivity data for specific industries in manufacturing?

BLS does not currently have comparative measures of productivity for individual manufacturing industries.

What are trade-weighted measures of unit labor costs?

Because the economies covered by the BLS measures differ greatly in their relative importance to U.S. trade in manufactured products, BLS constructs trade-weighted indexes of unit labor costs. Each country is assigned a weight based upon its importance to U.S. trade. Japan and Canada, for instance, are given the highest weights, while the weights for Denmark and Norway are very small. "Competitors' indexes" of unit labor costs are then constructed by taking trade-weighted geometric averages of the indexes for the competitor economies. Relative indexes are also constructed by taking ratios of the U.S. indexes of unit labor costs to the competitors' indexes. These summary measures are useful for analyzing trends in U.S. competitiveness relative to the other economies.

Why do you use purchasing power parities (PPPs) instead of market exchange rates for comparing levels of gross domestic product (GDP) per capita and per employed person?

Purchasing Power Parities (PPPs) reflect the relative purchasing power of each currency, whereas market exchange rates seldom do. At best, even freely fluctuating market exchange rates represent only the relative values of currencies for goods and services that are traded internationally, not the relative value of total domestic output, which also consists of goods, and particularly services, that are not traded or which are isolated from the effects of foreign trade. Market exchange rates are also affected by influences entirely unrelated to the relative values of currencies for purchases of goods or services. These influences include currency traders' views of the stability of various countries' governments, relative interest rates among countries, and other incentives for holding financial assets in one country compared to another.

What are purchasing power parities (PPPs)?

Purchasing Power Parities (PPPs) are conversion rates that represent the number of currency units required to purchase goods and services in a given country equivalent to what could be bought with one unit of currency in the base country. For example, if the United States is the base country, then the PPP for Japan would be the amount of yen required to buy the same goods and services in Japan that you could buy for one dollar in the United States.

PPPs are interspatial price indexes constructed for the purpose of comparing prices and volumes across countries. They are analogous to intertemporal price indexes used within a country to compare changes in prices and volumes over time, such as a consumer price index. Just as a consumer price index measures the cost of a representative basket of goods and services over time, PPPs can be used to measure the cost of a representative basket of goods and services across countries. The procedures are essentially the same: to price a representative set of goods and services and then to average the price ratios to arrive at an overall index.

Do you have international comparisons of manufacturing productivity levels?

The BLS comparative productivity measures for manufacturing are limited to trend comparisons (percent changes in productivity over time). BLS does not make any comparisons of manufacturing productivity levels. Therefore, using the BLS measures, it is only possible to say whether U.S. productivity is growing at a faster or slower rate than productivity in other countries.

Comparisons of productivity levels between countries depend on comparable measures of output and labor input for each country. Accurate conversion factors are needed for converting each country's output, measured in own-country currency terms, into a common unit of measurement, such as the U.S. dollar. Purchasing power parities (PPPs) are such conversion factors. PPPs are available for total gross domestic product (GDP) from the United Nations' International Comparisons Project (UNICP). They are derived from the expenditure side of the national accounts (consumer, business, and government final expenditures for goods and services) and not for gross product originating by industry, or value-added. Therefore, PPPs by industry are not available from this source.

Some analysts have constructed "proxy PPPs" for manufacturing using selected expenditure items from the UNICP. However, since the prices used are based on consumer, business, and government final expenditures, they have a number of shortcomings: they are based on final sales values rather than industry value added or gross output; they include indirect taxes, distribution margins, and transportation costs; they include the prices of imports and exclude the prices of exports; and the prices of intermediate products, such as steel, paper, and cement, are represented only marginally and indirectly as inputs to the final products included among the selected expenditures.

A different approach has been used by researchers at the International Comparisons of Output and Productivity project at the University of Groningen in the Netherlands. They develop unit value ratios or UVRs based on ratios of producers' sales values per unit of output for matched products from country censuses of manufactures. This procedure also has shortcomings, primarily because only a portion of manufactured products can be matched and the matched products may not be adequately representative. For an article based on this approach, see "Manufacturing Prices, Productivity, and Labor Costs in Five Economies," PDF (1091K) by Bart van Ark, Monthly Labor Review, July 1995, pp. 56-72.

Hourly Compensation Questions

What does hourly compensation costs mean?

Hourly compensation costs are employer labor costs. Hourly compensation is defined as (1) all payments made directly to workers -- pay for time worked (basic time and piece rates plus overtime premiums, shift differentials, other premiums and bonuses paid regularly each pay period, and cost-of-living adjustments), pay for time not worked (such as for vacations and holidays), seasonal or irregular bonuses and other special payments, selected social allowances, and the cost of payments in kind -- before payroll deductions of any kind, and (2) employer expenditures for legally required insurance programs and contractual and private benefit plans (such as retirement plans, health insurance, unemployment insurance, and family allowances). In addition, for some countries, compensation is adjusted for other taxes on payrolls or employment (or reduced to reflect subsidies), even if they do not finance programs that directly benefit workers, because such taxes are regarded as labor costs.

The BLS definition of hourly compensation costs is not the same as the International Labor Office (ILO) definition of total labor costs. Hourly compensation costs do not include all items of labor costs. The costs of recruitment, employee training, and plant facilities and services -- such as cafeterias and medical clinics -- are not included because data are not available for most countries. The labor costs not included account for no more than 4 percent of total labor costs in any country for which the data are available.

How does hourly compensation differ from hourly wages or earnings?

Wages or earnings do not include employer payments into funds for the benefit of workers, which in many countries account for a large proportion of total compensation. In addition, some items of direct pay, such as year-end bonuses, may not be included in country definitions of wages or earnings. Consequently, comparisons based on the more readily available average earnings statistics published by many countries are only partial measures of employer compensation costs and may not be comparable because of country differences in the definition of average earnings.

Can the BLS hourly compensation cost measures be used to compare worker incomes?

No. The hourly compensation figures provide comparative measures of employer labor costs; they do not provide intercountry comparisons of the purchasing power of worker incomes. Prices of goods and services vary greatly among countries, and the commercial market exchange rates used to compare employer labor costs do not reliably indicate relative difference in prices. Purchasing power parities -- that is, the number of foreign currency units required to buy goods and services equivalent to what can be purchased with one unit of U.S or other base-country currency -- must be used for meaningful international comparisons of the relative purchasing power of worker incomes.

Total compensation converted to U.S. dollars at purchasing power parities would provide one measure for comparing relative real levels of labor income. It should be noted, however, that total compensation includes employer payments to funds for the benefit of workers in addition to payments made directly to workers. Payments into these funds provide either deferred income (e.g., payments to retirement funds), a type of insurance (e.g., payments to unemployment or health benefit funds), or current social benefits (e.g., family allowances), and the relationship between employer payments and current or future worker benefits is indirect. On the other hand, excluding these payments would understate the total value of income derived from work because they substitute for worker savings or self-insurance to cover retirement, medical costs, etc.

Total compensation, because it takes account of employer payments into funds for the benefit of workers, is a broader income concept than either total direct earnings or direct spendable earnings. However, compensation costs only include worker benefits financed by taxes on payrolls or employment -- they do not include worker benefits financed out of general revenues, such as the British national health system and family allowances in Germany. An even broader concept would take account of all social benefits available to workers, including those financed out of general revenues as well as those financed through employment or payroll taxes.

Labor Force and Unemployment Questions

How do other countries measure unemployment?

Many foreign countries, including Canada, Mexico, Australia, Japan, and all of the members of the European Union use the same method of counting the unemployed as the United States -- a sample survey of households. More recently, the Russian Federation and a number of Eastern European nations have also instituted household surveys. However, some countries, e.g., the United Kingdom, collect their official monthly statistics on the unemployed from employment office registrations or unemployment insurance records. Many nations, including the United States, use both labor force survey data and administrative statistics to analyze unemployment.

On a monthly basis, BLS compiles a series of unemployment rates, with adjustments to U.S. concepts, for eight foreign nations: Australia, Canada, Japan, France, Germany, Italy, Sweden, and the United Kingdom.

Reference:

"International Unemployment Rates: How Comparable are They?" PDF (97K) by Constance Sorrentino, Monthly Labor Review, June 2000, pp. 3-20.

How does the U.S. unemployment rate compare with other industrial countries?

Unemployment rates in the United States were comparatively high in the 1970s. In the next two decades, however, the United States improved its relative position. In contrast, European countries saw a deterioration in their jobless rates during the 1980s that persisted into the 1990s.

In 1999, the U.S. unemployment rate of 4.2 percent was well below the rates in Canada, France, Germany, Italy, Sweden, and the United Kingdom. The U.S. rate was also lower than Japan’s rate of 4.7 percent – the first time that the U.S. had a lower annual rate than Japan. This was a sharp turnaround from 1997, when Japan had the lowest unemployment rate of the major industrial countries, at 3.4 percent, while the U.S. rate was 4.9 percent.

Reference:

Unemployment Rates in Nine Countries, Civilian Labor Force Basis, Approximating U.S. Concepts, Seasonally Adjusted. Bureau of Labor Statistics, Office of Productivity and Technology, updated monthly.

Why is Japanese unemployment so low?

Until 1998-99, Japan’s unemployment rates were well below those of the United States. In 1998, the rates drew closer together (U.S. – 4.5 percent; Japan – 4.1 percent), and in 1999 the Japanese rate moved higher than the U.S. rate for the first time (U.S. – 4.2 percent; Japan – 4.7 percent). This turnaround was the result of historically low jobless rates in the United States combined with a surge in Japanese unemployment in the late 1990s.

Japan has been able to maintain relatively low unemployment rates historically because large numbers of women who are temporary or casual workers withdraw from the labor force when they lose their jobs, rather than becoming unemployed. Such workers generally bear the brunt of labor market adjustments in Japan. In this way, Japanese employers have flexibility in their work forces during economic downturns, enabling regular workers – predominantly men in larger Japanese enterprises – to be virtually assured of employment until they retire, under Japan’s lifetime employment system. This system, however, came under increasing pressure during the 1990s.

The conventional unemployment rate misses a great deal of labor underutilization in Japan, namely workers on reduced hours for economic reasons and discouragement (workers who want a job, but are not actively seeking work because they believe their search will be futile). A more broadly defined rate which takes these other elements of underutilization into account increases the Japanese rate much more than the U.S. rate. (See referenced articles.) Comparisons on the broader definitions are not available after 1993, however.

References:

"International Unemployment Indicators, 1983-1993," PDF (2,316K) by Constance Sorrentino, Monthly Labor Review, August 1995, pp. 31-50.

"International Comparisons of Unemployment Indicators," PDF (2,674K) by Constance Sorrentino, Monthly Labor Review, March 1993, pp. 3-24.

Why is Mexican unemployment so low?

In 2000 Mexico's official urban unemployment rate continued to fall, reaching an average of 2.2 percent. The rate has fallen steadily after reaching a high for the 1990s of 6.2 percent in 1995 in the wake of the late-1994 "peso crisis." Two main factors explain Mexico's traditionally low unemployment rate. First, the Mexican concept of unemployment excludes some persons who would be counted as unemployed under the U. S. concept. Second, and more important, Mexico's low unemployment masks a large number of persons in unstable, marginal jobs. Mexico has only recently introduced a rudimentary system of unemployment compensation that so far does little to cushion the impact of joblessness. People are still often compelled to work at some endeavor due to economic necessity. Workers are often underemployed, or they work in family businesses, as agricultural laborers, on the street, or door to door as vendors. Open unemployment tends to be higher among better-educated workers in the more modern sectors of the economy because these people may have the means to be without work while looking for a suitable job.

Reference:

"Employment and Unemployment in Mexico in the 1990s," PDF (142K) by Gary Martin, Monthly Labor Review, November 2000, pp. 3-18.

"Employment and Unemployment in Mexico's Labor Force," PDF (2,012K) by Susan Fleck and Constance Sorrentino, Monthly Labor Review, November 1994, pp. 3-31.

Last Modified Date: August 21, 2002

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