People are asking…

How is productivity defined?

Productivity is a measure of economic efficiency which shows how effectively economic inputs are converted into output.

Why is productivity measurement important?

Advances in productivity, that is the ability to produce more with the same or less input, are a significant source of increased potential national income. The U.S. economy has been able to produce more goods and services over time, not by requiring a proportional increase of labor time, but by making production more efficient.

How is productivity measured by BLS?

Productivity is measured by comparing the amount of goods and services produced with the inputs which were used in production. Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output.

What is the most commonly used productivity measure?

Output per hour of all persons--labor productivity--is the most commonly used productivity measure. Labor is an easily-identified input to virtually every production process. In the U.S. nonfarm business sector, labor cost represents more than sixty percent of the value of output produced. Output per hour in the nonfarm business sector is the productivity statistic most often cited by the press.

Are industry productivity measures available for separate regions, states, and cities in the United States?

No. Productivity measures are only available at the national level. BLS productivity measures are based on aggregate national measures of outputs and inputs. These data sources do not provide the information BLS would need to construct regional, or state measures.

What are "unit labor costs"?

Unit labor costs are calculated by dividing total labor compensation by real output or --- equivalently ---- by dividing hourly compensation by productivity.

That is, unit labor costs = total labor compensation / real output ; or equivalently,

unit labor cost = hourly compensation / productivity
= [total labor compensation / hours] / [output / hours]
Thus, increases in productivity lower unit labor costs while increases in hourly compensation raise them. If both series move equally, unit labor costs will be unchanged.

Does outsourcing and offshoring of intermediate production inflate the productivity measures?

In the business sector, outsourcing to domestic nonmanufacturing industries and offshoring to foreign businesses alter the distribution of production among firms. Since firms can differ in their productivity, domestic outsourcing can affect business sector productivity if the contracting firm differs in its productivity from the outsourced production. Similarly, offshoring can affect business sector productivity if the productivity of the production lost to offshoring differs from the productivity of remaining and any new U.S. business sector production. Any effect of offshoring on business sector productivity change is expected to be modest.

Outsourcing and offshoring have the potential for greater effect on labor productivity at the industry level. In manufacturing, outsourcing and offshoring have contributed about 1.5% per year to sectoral output per hour growth between 1973 and 1995. Their contribution has slowed to only about 1% per year thereafter and as a result they do not appear to be an explanation for the productivity speed-up in manufacturing.

Further discussion can be found in "The Effect of Outsourcing and Offshoring on Productivity Change" (PDF).

Why can't I find a productivity measure for the total economy?

The broadest measure of productivity published by the Bureau of Labor Statistics is that for the U.S. business sector. Business sector output covered about 78 percent of the value of gross domestic product (GDP) in 2000. The business sector excludes many activities where it is difficult to draw inferences on productivity from GDP. These excluded activities are: General government, nonprofit institutions, paid employees of private households, and the rental value of owner-occupied dwellings.

In the GDP, the output of general government, nonprofit institutions, and paid employees of private households are based largely on the incomes of input factors. In other words, the measure is constructed by making an implicit assumption of negligible productivity change. BLS also excludes the value of owner-occupied dwellings because this sector lacks a measure of the hours homeowners spend maintaining their home.

Last modified: November 9, 2004

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