U.S. DEPARTMENT OF LABOR Bureau of Labor Statistics Washington, D.C. 20212 May 1967 INDEXES OF OUTPUT PER MAN-HOUR, HOURLY COMPENSATION, AND UNIT LABOR COSTS IN THE PRIVATE SECTOR OF THE ECONOMY AND THE NONFARM SECTOR, 1947-66 This release provides information on hourly compensation, unit labor costs and nonlabor payments, prices, and output per man¬ hour for the private sector of the economy and the nonfarm sector during the period 1947-66. These data are useful in studying the relationship between prices, costs, and productivity. In their use however, it is important to recognize certain statistical and conceptual limitations. 1. Limitations and qualifications The indexes for the total and nonfarm sectors of the private economy reflect the divergent movements of the various industries, such as manufacturing, mining, trade, construction, services, etc., which constitute the total. Therefore, trends for the private economy and nonfarm sector may not necessarily be representative of any individual industry. The indexes reflect changes within the various component industries as well as shifts in the relative importance of each of the industries. For example, output per man-hour for the private sector is influenced not only by changes in productivity in each of the sepa¬ rate industries making up the total, but also by shifts in the relative importance of each industry. Similarly, the estimate of average hourly compensation is affected by shifts in employment from low to high earnings industries and vice versa. The index of unit labor costs also is influenced by changes in the relative importance of industries with different unit labor costs. Caution should be exercised in ascribing cause and effect relationships, particularly with respect to price changes, since prices are subject to numerous influences of changing market conditions and costs of production. Change in price generally cannot be explained by reference to any single factor, even one as large as labor costs. Increased demand for a product may also lead to price and wage increases. There is a strong interaction between demand and costs. It is not possible to determine from figures alone whether wage Increases cause price increases or vice versa. 2 Although the data on the attached table are useful in comparing prices with unit labor costs and nonlabor payments, it is emphasized that year-to-year changes in productivity, earnings, and prices or in the relationship between these factors are not uniform and are not neces¬ sarily indicative of a basic change in trend or relationships. 2• Hourly comp ens ation The term '’compensation" includes wages and salaries plus supplemental payments such as contributions of employers to social security and private health and instjrance funds. The "all persons" compensation data include an estimate for proprietors' salaries and supplementary payments* The figures on "real" compensation derived from the actual compensation data adjusted to reflect changes in purchasing power. This is done by deflating the compensation figures by the Consumer Price lade*. 4. Prices and costs The price index (total payment in current dollars per unit of output) is derived by dividing the actual dollar estimate of gross product by the constant dollar estimate (i„e., output in constant prices). Both the current and constant dollar estimates are published by the Office of Business Economics of the Department of Commerce. This price index represents the change in price of all final goods and services produced by the private sector of the economy. "Price" may be viewed as the sum of all the costs of production and distribution per unit-«thst is, the sum of unit labor costs and unit nonlabor payments. Nonlabor payments include profits, noncorporate income, depreciation, indirect business taxes, and other income or costs. Materials and intermediate services are not considered as separate cost elements in this concept of price (or cost) since the payments for labor, profits, etc., are cumulative, covering all stages of production and distribution, from raw materials to final product. The index of prices (used to deflate the value of private output) reflects the change in all the costs of production and distribu¬ tion in the private sector of the economy. It is not the same as the Consumer Price Index, which is used to deflate current dollar earnings in order to obtain real earnings (in constant dollars). The Consumer Price Index reflects the change in the price of those goods and services, including farm products, which are usually purchased by consumers. 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