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.
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 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 Productivity

2 1.8

 Output per hour of all persons 2.6

 Output per unit of capital services 0.3 

Output 4.0

Inputs

 Labor input

3 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. 
4

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.