The output measures used in the industry labor productivity measures are also used in the multifactor productivity measures. Employee hour indexes are calculated in the same way as those used in measuring industry labor productivity. The measure of capital input is based on the flow of services derived from the stock of physical assets. Physical capital is composed of equipment, structures, land, and inventories.
Financial capital is excluded.
Stocks of different asset types are Tornqvist-aggregated, using estimated rental prices to construct the weights for assets of different types. Capital stocks are calculated using the perpetual inventory method, which takes into account the continual additions to and subtractions from the stock of capital as new investment and retirement of old capital take place. The perpetual inventory method measures stocks at the end of a year equal to a weighted sum of all past investments, where the weights are the asset's efficiency relative to a new asset. A hyperbolic age-efficiency function is used to calculate the relative efficiency of an asset at different ages. The parameter of efficiency decline is assumed to be 0.5 for equipment and 0.75 for structures.