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Internet address: http://www.bls.gov/mfp USDL 07-0758
Historical, technical For Release: 10:00 AM EDT
information: (202) 691-5606 Thursday, May 24, 2007
Media contact: (202) 691-5902
PRELIMINARY MULTIFACTOR PRODUCTIVITY TRENDS, 2006
Private Business Sector and Private Nonfarm Business Sector
The Bureau of Labor Statistics (BLS) of the U.S. Department of Labor reported
today the change in preliminary multifactor productivity in 2006 for the
private business and private nonfarm business sectors. The estimated annual
rate of multifactor productivity change from 2005 to 2006 was:
2005-06
Private business sector 1.1
Private nonfarm business sector 1.0
The estimates of multifactor productivity in the private business and in the
private nonfarm business sectors for 2006 both show the slowest annual rates
of growth since 2001. The 2005-06 annual changes are summarized in tables A
and B, table B also presents data showing historical trends.
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 measures differ from labor
productivity (output per hour worked) measures that are published quarterly by
BLS since they include information on capital services and other data that are
not available on a quarterly basis.
A change in multifactor productivity reflects the difference between the change
in real gross domestic product for the sector and the change in labor and
capital inputs engaged in the production of this output. The output measures
for the private business and private nonfarm business sectors contained in this
release are similar to the indexes of output for business and nonfarm business
used in the quarterly labor productivity measures but the output of government
enterprises is omitted. Conceptually, 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.
Private business sector
Chart 1 shows the annual indexes of multifactor productivity, output per hour
worked, and output per unit of capital services during the 1987-2006 period
for the private business sector. Over the last 19 years, capital services
have grown more rapidly than hours in the private business sector, and the
skills of workers -- as measured by their education and work experience --
also have risen over this period. These shifts toward more capital intensive
production and toward workers with more human capital have supplemented labor
productivity growth, usually allowing output per hour to grow at a faster rate
than multifactor productivity.
Multifactor productivity rose 1.1 percent for the private business sector in
2006 (see table A). The multifactor productivity gain in 2006 reflected a 3.8
percent increase in output and a 2.7 percent increase in the combined inputs of
capital and labor.
Capital services grew 3.0 percent. Labor input posted an increase of 2.6
percent, as both hours worked and labor composition rose. The capital-labor
ratio (capital services per hour of all persons) increased by 0.9 percent.
Labor input reflects the change in hours at work adjusted for the effects of
changing labor composition. The increase of labor input was due to an increase
in hours at work of 2.1 percent and an increase of 0.5 percent in labor
composition. Labor productivity (output per hour worked) increased 1.7
percent. Capital productivity (output per unit of capital services) grew 0.7
percent. As shown in table B, the contribution of labor composition rose 0.3
percent from 2005 to 2006, while the contribution of capital intensity growth
gained 0.3 percentage points over the same period.
Table A. Productivity and related data, percent changes 2005-06
Private
Private Nonfarm
Business1 Business1
Productivity
Multifactor Productivity2 1.1 1.0
Output per hour of all persons 1.7 1.6
Output per unit of capital services 0.7 0.7
Output 3.8 3.8
Inputs
Labor input3 2.6 2.6
Hours 2.1 2.2
Labor Composition4 0.5 0.5
Capital services 3.0 3.1
Combined units of labor and capital inputs5 2.7 2.8
Analytic ratio:
Capital services per hour of all persons 0.9 0.9
1. Excludes government enterprises.
2. Output per unit of combined labor and capital inputs.
3. Index of hours at work by education and experience group, 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.
Private nonfarm business sector
Multifactor productivity rose 1.0 percent for the private nonfarm business
sector in 2006 (table A). The multifactor productivity gain in 2006 reflected
a 3.8 percent increase in output and a 2.8 percent increase in the combined
inputs of capital and labor.
Capital services grew 3.1 percent. Labor input posted an increase of 2.6
percent, as both hours worked and labor composition rose. The capital-labor
ratio (capital services per hour of all persons) increased by 0.9 percent.
The increase of labor input was due to an increase of 2.2 percent in hours at
work and an increase of 0.5 percent in labor composition. Labor productivity
(output per hour worked) increased 1.6 percent. Capital productivity (output
per unit of capital services) grew 0.7 percent. The contribution of labor
composition rose 0.3 percent, while the contribution of capital intensity
growth gained 0.3 percentage points from the previous period (see table B).
Table B. Compound average annual rates of growth in output per hour of all
persons and the contributions of capital intensity, labor composition, and
multifactor productivity, by major sector, 1987 to 2006
(percent per year)
1987-06 1987-90 1990-95 1995-00 2000-06 2005-06
Private business1
Output per hour
of all persons 2.3 1.6 1.5 2.7 3.0 1.7
Contribution of
capital intensity2 0.8 0.6 0.6 1.1 0.9 0.3
Contribution of
labor composition3 0.4 0.4 0.4 0.3 0.4 0.3
Multifactor
productivity4 1.1 0.6 0.5 1.3 1.7 1.1
Private nonfarm
business1
Output per hour
of all persons 2.2 1.5 1.6 2.5 2.9 1.6
Contribution of
capital intensity2 0.8 0.6 0.6 1.1 0.9 0.3
Contribution of
labor composition3 0.4 0.4 0.4 0.3 0.4 0.3
Multifactor
productivity4 1.0 0.5 0.6 1.1 1.6 1.0
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.
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.
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 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 2006 labor composition index assumed that
relative wages across groups remained constant between 2005 and 2006. The sum
over all groups of the hour�s 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 indexes for the private
business and the private nonfarm business sectors are 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.
These measures differ from manufacturing multifactor productivity which
includes intermediate inputs (energy, materials, and purchased business
services) in the denominator.