Productivity Growth: Why It Matters and How It's Measured

Labor productivity — output per hour worked — is one of the most important economic statistics you've never heard of. It is the foundation of long-run wage growth and living standards. If workers produce more per hour, employers can afford to pay them more without raising prices. Sustained productivity growth is what distinguishes prosperous economies from stagnant ones.

How BLS Measures Productivity

The BLS Productivity and Costs program produces quarterly estimates of labor productivity and unit labor costs for major sectors and selected industries. Output is typically measured as inflation-adjusted gross value added. Hours are measured from the CES establishment survey. The ratio gives output per hour.

Unit labor costs (ULC) are the flip side: labor compensation per unit of output. When ULC rises faster than productivity, it signals inflationary pressure — employers are paying more per unit of production, which they typically pass on as higher prices.

The Post-2005 Slowdown

U.S. nonfarm business productivity grew at roughly 2.5% per year from 1995 to 2005 — the "productivity boom" associated with IT adoption. Since 2005, growth has slowed to under 1.5% annually. Economists debate the causes: measurement problems in capturing digital services, capital investment slowdown, declining business dynamism. The pandemic briefly reversed the trend, as employment fell faster than output.

Explore industry productivity data at our industries section.