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Internet address: http://www.bls.gov/mfp USDL 06-1510
Historical, technical Tuesday, August 29, 2006
information: (202) 691-5606 For Release: 10:00 AM EDT
Media contact: (202) 691-5902
PRELIMINARY MULTIFACTOR PRODUCTIVITY TRENDS, 2005
Private Business Sector
The Bureau of Labor Statistics of the U.S. Department of Labor reported today
the preliminary multifactor productivity data, output per combined units of
labor and capital inputs, for 2005 for the private business sector. The
estimated annual rate of multifactor productivity change from 2004 to 2005 was
an increase of 1.8 percent.
The estimate of multifactor productivity in the private business sector for
2005 shows a slower rate of growth than the past two years. The 2004-5 annual
changes are summarized in tables A and B.
Multifactor productivity growth is designed to measure the joint influences of
economic growth on technological change, efficiency improvements, returns to
scale, reallocation of resources, and other factors, allowing for the effects
of capital and labor. Multifactor productivity, therefore, differs from labor
productivity (output per hour worked) measures that are published quarterly by
BLS since it includes information on capital services and other data that are
not available on a quarterly basis.
In the private business sector, the change in multifactor productivity reflects
the difference between the change in real gross domestic product for the
private business sector and the change in labor and capital inputs engaged in
the production of this output. The output measures for the private business
sector are similar to the indexes of output for business used in the quarterly
labor productivity measures but the output of government enterprises is
omitted. Government enterprises are agencies that maintain separate accounts
and that cover a substantial portion of their operating costs by selling goods
and services to the public.
Beginning with this release, BLS will issue annually in news release format
preliminary multifactor productivity measures for the prior calendar year.
The methodology for producing these preliminary estimates is discussed in
�Preliminary estimates of multifactor productivity growth�, published in the
June, 2005 Monthly Labor Review, available at
http://www.bls.gov/opub/mlr/2005/06/art3abs.htm. The Bureau intends to
issue more comprehensive data containing updated inputs and using a more
thorough methodology for each calendar year at a later date; for instance,
data for 2005 are expected to be available in early 2007.
A change in multifactor productivity reflects the change in output that cannot
be accounted for by the change in combined inputs of labor and capital. In
contrast, a change in labor productivity reflects the change in output that
cannot be accounted for by the change in hours of all persons engaged in
production.
Multifactor productivity rose 1.8 percent in 2005. The multifactor
productivity gain in 2005 reflected a 4.0 percent increase in output and a 2.2
percent increase in the combined inputs of capital and labor.
Growth in capital services rose to 3.7 percent. Hours worked rose 1.3 percent
in 2005; labor input posted an increase of 1.4 percent. The capital-labor
ratio (capital services per hour of all persons) increased by 2.3 percent.
Table A. Productivity and related data, private business sector1, percent
changes 2004-05
Productivity
Multifactor Productivity2 1.8
Output per hour of all persons 2.6
Output per unit of capital services 0.3
Output 4.0
Inputs
Labor input3 1.4
Hours 1.3
Labor Composition4 0.1
Capital services 3.7
Combined units of labor and capital inputs5 2.2
Analytic ratio:
Capital services per hour of all persons 2.3
1. Excludes government enterprises.
2. Output per unit of combined labor and capital inputs
3. Index of hours at work; hours at work by education and experience group are
weighted by each group�s share of labor compensation.
4. Ratio of labor input to hours.
5. Labor input index combined with capital services input index, weighted by
labor�s and capital�s shares of nominal output.
Labor input reflects the change in hours at work adjusted for the effects of
changing labor composition. As mentioned previously, labor input increased 1.4
percent. The increase of labor input was due to an increase in hours at work
and a modest increase of 0.1 percent in labor composition (see table A). Labor
composition measures the shifts in the educational attainment and work
experience of the work force. Hours increased 1.3 percent in 2005. Labor
productivity (output per hour worked) increased 2.6 percent. Capital
productivity (output per unit of capital services) grew 0.3 percent. In
table B, the contribution of labor composition rose 0.1 percent, while the
contribution of capital intensity growth gained 0.7 percentage points from the
previous period.
Table B. Contributions to percentage change in private business sector1 output
per hour, 2005
2004-05
Output per hour of all persons 2.6
Contribution of capital intensity2 0.7
Contribution of labor composition3 0.1
Multifactor productivity4 1.8
1. Excludes government enterprises.
2. Growth rate in capital services per hour multiplied by capital's share of
current dollar costs.
3. Growth rate of labor composition (the growth rate of labor input less the
growth rate of the hours of all persons) multiplied by labor's share of
current dollar costs.
4. Output per unit of combined labor and capital inputs.
Note: Multifactor productivity plus contribution of capital intensity and labor
composition may not sum to output per hour due to independent rounding.
Contribution of information processing equipment and all other capital may not
sum to the contribution of capital intensity due to independent rounding.
Comprehensive tables containing additional data not included in this news
release are available at http://www.bls.gov/mfp/mprdload.htm or in print upon
request.
Summary of Methods
This release uses the methodology for preliminary estimates discussed in
�Preliminary estimates of multifactor productivity growth� located at
http://www.bls.gov/opub/mlr/2005/06/art3abs.htm. This methodology was inspired
by previous work of Stephen Oliner and Dan Sichel, cited there.
Capital Input: Capital input is an estimate of 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 estimated rental prices are
estimated for each of these eight aggregates. Rental prices reflect the
nominal rates of return and 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 BEA. Capital input
measures constructed for the preliminary MFP measures are based on less detail
than those for full MFP measure.
Labor Input: Labor input is total hours worked multiplied by a labor
composition index. Hours paid of employees are largely obtained from BLS�s
Current Employment Survey (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 non-production and supervisory workers are derived using data from
the 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.
The labor composition index estimates the effect of shifts in the experience,
education, and gender composition of the work force on the efficiency of labor
and multifactor productivity growth. The preliminary MFP labor composition
measure estimates the number of hours worked by each type of worker based on
CPS data. The estimate of the 2005 labor composition index assumed that
relative wages across groups remained constant between 2004 and 2005. The sum
over all groups of the hours growth rates multiplied by the labor cost shares
gives the growth in adjusted labor input. Subtracting this from the growth in
total (un-weighted) hours yields the growth in labor composition.
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."
http://www.bls.gov/mfp/home.htm
Combined Inputs: The labor and capital input components are combined using
a Tornqvist index. In this procedure, the growth rates of the components are
combined with weights that represent each component's share of total production
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 U.S. private business sector. 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. Multifactor productivity measures exclude
government enterprises, while the BLS quarterly Productivity and Cost series
include them.
Multifactor Productivity: The multifactor productivity index for the private
business sector is derived by dividing an output index by the superlative index
(Tornqvist index) combining labor input and capital services. The output
indexes are also computed as chained superlative indexes (Fisher Ideal indexes)
of components of real output.