For tangible products such as tons of steel, developing an output index series and ultimately a productivity series seems not to be too difficult. Labor productivity refers to the relationship between output and the labor time used in generating that output. It is the ratio of output per hour. In multifactor productivity measures, output is related to combined inputs of labor, capital and intermediate purchases. Labor is measured by the number of hours of labor expended in the production of output.
Capital includes equipment, structures, land and inventories.
Intermediate purchases are composed of materials, fuels, electricity, and purchased services. 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. A few of the more important ways are increased training and education, increased and improved capital equipment, better organization, and new technology. The index series for output is divided by an index series for employee hours. The index series for output is divided by an index series for the combined inputs of labor, capital, and intermediate purchases.