1

U.S. Department of Labor

U.S. Bureau of Labor Statistics

February 2006

Report 993

T he Bureau of Labor Statistics (BLS) has developed laborproductivity measures and related series for two new

service industries: architectural services (NAICS 54131) and

engineering services (NAICS 54133). The introduction of

these measures reflects ongoing BLS efforts to expand data

collection and productivity measurement in the service sector.

This report discusses productivity trends from 1987 through

2003.

Labor productivity rose in both the architectural services

industry and the engineering services industry between 1987

and 2003. Output per hour increased at an average annual

rate of 1.4 percent in architectural services and 0.6 percent in

engineering services over the period. (See tables 1 and 2.)

Productivity growth in the architectural services industry

was strongest during the first half of the 1990s, while, in the

engineering services industry, productivity declined over

the same period, but recovered in the latter half of the decade.

From 2000 to 2003, productivity increased in architectural

services, but declined in engineering services.

In the architectural services industry, the average annual

productivity gain of 1.4 percent per year from 1987 to 2003

reflected average output growth of 3.6 percent per year and

average growth in hours of 2.2 percent per year. Productivity

growth in architectural services was especially strong during

the early to mid-1990s, rising an average 2.7 percent per year

from 1990 to 1995, as output rose 2.1 percent and hours

declined 0.6 percent. In the second half of the decade, output

and hours both advanced a brisk 6.9 percent per year, leaving

productivity unchanged. From 2000 to 2003 productivity

rose 1.5 percent per year, on average, as output growth

slowed to 0.9 percent per year and hours declined 0.6 percent.

Unit labor costs rose at an average annual rate of 1.9 percent

per year from 1987 to 2003 in the architectural services

industry.

In the engineering services industry, the average annual

productivity growth of 0.6 percent between 1987 and 2003

reflected an output growth of 2.4 percent per year and a

growth in hours of 1.8 percent per year. Productivity in

engineering services grew most rapidly at the end of the

1980s and during the second half of the 1990s. From 1995 to

2000, output per hour grew 1.8 percent per year as output

rose 6.2 percent per year and hours increased 4.3 percent.

Productivity declined during the first half of the 1990s, with

output falling an average 0.6 percent per year and hours

rising 0.4 percent per year. Productivity also declined from

2000 to 2003, as output fell an average 2.5 percent per year

and hours declined 1.1 percent per year. Unit labor costs

rose 3.8 percent per year in engineering services from 1987

to 2003.

Measures of labor productivity describe the relationship

between output and the labor time involved in its production

and are constructed by dividing an index of real output by

an index of labor hours. The output indexes for the

architectural services industry and the engineering services

industry are based on current-dollar revenues from the

economic censuses and annual surveys of the Census

Bureau of the U.S. Department of Commerce. Annual receipts

are adjusted for price change by “deflating” those receipts

with appropriate price indexes. In recent years, BLS has

extended coverage of its producer price indexes (PPIs) to a

number of new service-sector industries, allowing for the

construction of improved measures of output and

productivity. For the two industries covered here, annual

PPIs are available to deflate receipts beginning in 1997. To

provide a longer productivity time series for analysis,

industry output prices were extrapolated back to 1987, using

changes in alternative, related series. For the architectural

services industry, total revenues for the years prior to 1997

were deflated with an implicit price deflator for the value of

construction put in place, a measure maintained by the

Census Bureau. For the engineering services industry, the

price index used to deflate industry revenues was

extrapolated back to 1987 with annual changes in the average

hourly wages in that industry. Estimating historical industry

price trends with these alternative price series is useful for

extending the productivity measures and establishing a

baseline for productivity analysis. However, the alternative

price indexes do not explicitly measure changes in the prices

of the final industry outputs, nor do they include price

adjustments or other improvements reflected in the PPIs.

Therefore, the pre-1997 productivity series should be

interpreted with caution.

Comparing productivity changes in the pre-1997 and post1997 periods reveals similar average productivity growth for

New Service Industry

Productivity Measures
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the two industries from 1987 to 1997, but different

productivity trends after 1997. From 1987 to 1997,

productivity rose at an average annual rate of 1.0 percent in

both industries, reflecting growth in both output and hours

for each industry over the period. From 1997 to 2003, output

per hour in the architectural services industry grew at an

even faster rate of 1.9 percent per year. In the engineering

services industry, however, productivity declined 0.2 percent

per year, on average, reflecting continued declines in output

and productivity after 2000.

Table 1. Average annual percent change in output per hour, output, hours, and unit labor costs, selected periods,

1987–2003

Output

per

hour

Output

per

hour

Hours

Unit

 labor

cost

Output Year Output

 Unit

 labor

cost

1987–2003 1.4 3.6 2.2 1.9 0.6 2.4 1.8 3 . 8

1987–1997 1.0 3.0 1.9 2.4 1.0 2.8 1.8 3.8

1997–2003 1.9 4.8 2.8 1.2 –.2 1.6 1.8 3.7

1990–1995 2.7 2.1 –.6 –0.9 –1.0 –.6 0.4 4.9

1995–2000 .0 6.9 6.9 4.9 1.8 6.2 4.3 2.1

2000–2003 1.5 .9 –.6 –.5 –1.5 –2.5 –1.1 4.1

Architectural services Engineering services

Table 2. Annual indexes of output per hour, output, hours, and unit labor costs, 1987–2003

 Year

Output

per

hour

Output

 Hours

Output

per

hour

Hours Output Hours

Unit

 labor

cost

Unit

 labor

cost

1987 90.2 74.8 82.9 79.1 90.4 75.8 83.8 68.7

1988 90.8 76.2 83.9 83.7 93.5 79.0 84.6 71.4

1989 94.4 82.0 86.9 85.0 99.3 88.1 88.8 71.9

1990 94.0 83.3 88.6 90.2 99.4 90.7 91.2 78.5

1991 94.2 77.7 82.6 89.5 99.1 86.3 87.0 84.9

1992 100.9 79.3 78.6 86.9 97.3 84.6 86.9 91.1

1993 103.5 81.7 78.9 86.9 94.8 84.0 88.6 93.8

1994 101.5 85.9 84.7 88.4 93.9 84.8 90.4 95.6

1995 107.2 92.2 86.0 86.0 94.7 88.1 93.0 99.6

1996 110.4 101.0 91.5 87.1 98.3 94.3 95.9 97.7

1997 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

1998 110.9 116.7 105.2 96.0 102.1 105.2 103.0 103.1

1999 106.5 119.4 112.1 105.2 101.1 109.1 107.9 107.8

2000 107.0 128.7 120.3 109.4 103.6 118.9 114.7 110.3

2001 110.7 135.3 122.3 109.5 100.6 117.1 116.3 116.8

2002 107.3 125.8 117.3 114.4 99.9 111.9 112.0 120.7

2003 111.9 132.4 118.3 107.7 99.0 110.1 111.1 124.4

Architectural services Engineering services
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Industry output is measured as sectoral output, the total

value of goods and services leaving the industry. Wherever

possible, the indexes of industry output are calculated with

a Törnqvist formula. This formula aggregates the growth

rates of the various industry outputs between two periods,

using their relative shares in industry value of production,

averaged over the two periods, as weights.

The industry labor input measures represent the hours

paid of all workers in the industry. The primary source of

data on employment and hours is the BLS Current

Employment Statistics (CES) survey, which provides monthly

survey data on the number of jobs held by wage and salary

workers in nonfarm establishments. The CES survey also

provides data on the average weekly hours of production

and nonsupervisory workers in these establishments. The

Office of Productivity and Technology estimates the average

weekly hours of supervisory and nonproduction workers

by industry, using information from the Current Population

Survey (CPS) together with the CES data. For the industries

covered in this study, estimates of the hours of self-employed

workers and unpaid family workers from the CPS are added

to estimates of the hours of supervisory and nonsupervisory

employees. The hours for different types of workers are

treated as homogeneous and are directly aggregated.

The unit labor cost series describe the cost of labor input

required to produce one unit of output. The indexes of unit

labor costs for each industry are computed by dividing an

index of industry labor compensation by the index of

industry output. Compensation, defined as payroll plus

supplemental payments, is a measure of the cost to the

employer of securing the services of labor. Payroll includes

salaries, wages, commissions, dismissal pay, bonuses,

vacation and sick leave pay, and compensation in kind.

Supplemental payments include legally required expenditures

and payments for voluntary programs. The legally required

portion consists primarily of Federal old age and survivors’

insurance, unemployment compensation, and workers’

compensation. Payments for voluntary programs include all

programs not specifically required by legislation, such as

the employer portion of private health insurance and pension

plans.

Although the labor productivity measures relate output

to hours of employees or all persons engaged in an industry,

they do not measure the specific contribution of labor, capital,

or any other factor of production. Rather, they reflect the

joint effects of many influences, including changes in

technology; capital investment; level of output; utilization

of capacity, energy, and materials; the organization of

production; managerial skill; and the characteristics and

effort of the workforce.

Year-to-year movements in productivity measures for some

industries might be erratic, particularly in the smaller

industries. The annual changes in an industry’s output and

use of labor may reflect cyclical changes in the economy

rather than long-term trends. Also, annual productivity

indexes are based on sample data, which are likely to differ

from data generated by a census of establishments in the

industry. As a result, long-term trends tend to be more reliable

indicators of the performance of an industry than are the

year-to-year changes.

Published productivity and unit labor cost indexes for

selected NAICS industries, including the industries covered

in this report, can be accessed electronically by visiting the

Labor Productivity and Costs Web site: https://www.bls.gov/

lpc/home.htm. Measures for additional detailed manufacturing and trade industries are available upon request

by calling the Division of Industry Productivity Studies

(202-691-5618) or by sending a request by e-mail:

dipsweb@bls.gov. Data on industry employment, annual

hours, the net value of production, and the implicit price

deflator for output also are available upon request.

Material in this report is in the public domain and, with

appropriate credit, may be used without permission.

Information in this report will be made available to sensoryimpaired individuals upon request. Voice phone: 202-691-

5618; TDD message referral phone number: 1-800-877-8339.

Technical Note