Productivity measures output per unit of input. A factory might measure tables produced per labor hour, while an economist might measure inflation-adjusted output per hour across an industry or economy.
Output means the goods and services produced. Inputs are the resources used, such as labor, equipment, energy and materials. The US Bureau of Labor Statistics distinguishes labor productivity from total factor productivity, which compares output with a combination of inputs.
How is labor productivity calculated?
Labor productivity = output ÷ hours worked.
Suppose 100 workers each work eight hours and make 2,000 comparable tables in a day. Total labor time is 800 hours, giving 2.5 tables per hour. Output per worker is 20 tables per day, but that measure alone would hide changes in working hours.
The BLS explains why hours worked offer a more precise labor-input measure than worker numbers. An economy-wide measure such as the OECD’s GDP per hour worked also reflects equipment, technology and organization, rather than workers’ personal effort alone.
What are unit labor costs?
Unit labor cost is labor compensation divided by real output. Equivalently, it is hourly compensation divided by labor productivity. The BLS productivity glossary defines compensation and unit labor costs; compensation includes employer costs beyond take-home wages.
In this fictional example, output and productivity rise by 10%, but total compensation also rises by 10%. Labor cost per table stays at $8. If compensation had stayed at $16,000, the second day’s labor cost would instead be about $7.27 per table.
What is efficiency?
Productivity describes an output-to-input ratio. Efficiency asks how well resources are used relative to an attainable result. More output per hour can reflect better equipment or fewer production delays, but the calculation must also consider whether products remain comparable in quality.
Higher measured productivity does not guarantee a profit increase. Extra machinery may cost money, sale prices may fall, or additional output may remain unsold.
How is value added different?
Value added is output value minus the value of intermediate goods and services used in production. It is not the same as output divided by inputs, and it is not automatically profit.
The BLS methods explain the different output concepts used for productivity measures. Its headline business and nonfarm-business measures cover defined sectors, rather than every activity in the whole economy.
What does total factor productivity show?
Total factor productivity, also called multifactor productivity, relates output to combined measured inputs. Its growth reflects output growth not explained by measured input growth. Interpretation depends on the input coverage and measurement methods.
Productivity gains can support higher living standards and more output from available resources. Their benefits still depend on costs, distribution and how the additional production is used.
Last checked and updated on November 3, 2026 by the MBN editorial team.