Nonfarm business sector labor productivity decreased 4.2 percent in the fourth quarter of 2020, the U.S. Bureau of Labor Statistics reported today, as output increased 5.5 percent and hours worked increased 10.1 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the fourth quarter of 2019 to the fourth quarter of 2020, nonfarm business sector labor productivity increased 2.4 percent, reflecting a 2.6-percent decline in output and a 4.9-percent decline in hours worked.

Unit labor costs in the nonfarm business sector increased at an annual rate of 6.0 percent in the fourth quarter of 2020, the combined effect of a 1.5-percent increase in hourly compensation and a 4.2-percent decline in productivity. Unit labor costs increased 4.2 percent over the last four quarters, as hourly compensation increased 6.7 percent and productivity increased 2.4 percent. (See table A1.) BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs, and increases in productivity tend to reduce them.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers. The fourth quarter of 2020 is the second consecutive quarter with increases in both output and hours, following historic declines in those measures in the second quarter of 2020. Although output increased 5.5 percent and hours worked increased 10.1 percent in the fourth quarter of 2020, output and hours remain 2.6 percent and 4.9 percent below their fourth-quarter 2019 levels, respectively.

Manufacturing sector labor productivity increased 5.0 percent in the fourth quarter of 2020, as output increased 13.0 percent and hours worked increased 7.6 percent. Productivity had increased at a series-high 20.7 percent annual rate in the third quarter of 2020, following a decline of 13.3 percent in the second quarter. Manufacturing productivity increased 2.8 percent from the same quarter a year ago.

Unit labor costs in the total manufacturing sector decreased 8.8 percent in the fourth quarter of 2020, reflecting a 4.2-percent decrease in hourly compensation and a 5.0-percent increase in productivity. Manufacturing unit labor costs decreased 0.1 percent from the same quarter a year ago.

The strong growth in manufacturing output and hours worked in the fourth quarter of 2020 followed the largest-ever increases in these series in the third quarter. Nevertheless, these measures have not yet fully recovered from the historic declines of the second quarter; output and hours remain 2.5 percent and 5.2 percent below their fourth-quarter 2019 levels, respectively.

The robust growth in manufacturing output and hours in the fourth quarter of 2020 originated in both the durable goods and nondurable goods sectors. Durable goods manufacturing productivity increased 6.4 percent in the fourth quarter of 2020, reflecting a 12.8-percent increase in output and a 6.0-percent increase in hours. Nondurable goods manufacturing productivity increased 2.8 percent in the fourth quarter of 2020, as output increased 13.1 percent and hours worked increased 10.1 percent.

The concepts, sources, and methods used for the manufacturing output series differ from those used in the business and nonfarm business output series; these output measures are not directly comparable. See the Technical Notes for a more detailed explanation.

Revised measures
Quarterly and annual measures of hours worked and related series--including productivity--were revised for all major sectors. From 2016 to 2020, the revisions reflect revised BLS Current Employment Statistics (CES) program data, due to annual benchmarking of CES data and revised seasonal adjustment of those data. Previous adjustments to employment and hours by the productivity program to account for the impact of the COVID-19 pandemic, and based in part on CES employment levels, were revised to be consistent with the benchmarked levels.

Quarterly and annual measures of hours worked and related series were also revised from 2000 to 2020 to incorporate revised measures of hours worked by nonfarm proprietors and unpaid family workers, all farm workers, and employees of government enterprises. These measures, based on source data from the BLS Current Population Survey (CPS), are seasonally adjusted by the BLS Major Sector Productivity program, and were revised due to implementation of improved seasonal adjustment methods; for more information see “Updated Seasonal Adjustment of Hours Worked Data”. Because hours worked were revised for the index base year of 2012, all measures incorporating hours worked including productivity were subject to revision back to 1947; resulting revisions to percent changes are small.

Quarterly and annual measures incorporating compensation were also subject to revision historically, because hours worked are used to estimate compensation for proprietors. Quarterly measures of real hourly compensation in 2020 were revised due to revised consumer prices. In addition, third quarter, fourth quarter, and annual average data for 2020 were revised to incorporate regular updates of source data on output and compensation.

Revised and previous measures for the fourth quarter of 2020 are shown in table B1 for the business, nonfarm business, and manufacturing sectors. In the fourth quarter of 2020, nonfarm business productivity was revised up, from a decrease of 4.8 percent to a decline of 4.2 percent, reflecting a 0.2-percentage point upward revision to output and a 0.6-percentage point downward revision to hours worked. Unit labor costs were revised down from an increase of 6.8 percent to an increase of 6.0 percent.

Manufacturing productivity increased 5.0 percent in the fourth quarter of 2020, rather than increasing 3.0 percent as reported February 4, the combined effect of an upward revision to output and a downward revision to hours worked. A large downward revision to hourly compensation and an upward revision to productivity both contributed to a downward revision to unit labor costs, which decreased 8.8 percent rather than 2.4 percent as previously reported. Productivity was revised up in both the durable and nondurable manufacturing sectors. In particular, nondurable manufacturing productivity was revised up to an increase of 2.8 percent due entirely to an upward revision to output.

In the third quarter of 2020, nonfarm business productivity was revised down to an increase of 4.2 percent due to an upward revision to hours worked. Unit labor costs decreased 9.6 percent rather than 7.0 percent as previously reported, as a 3.6-percentage point downward revision to hourly compensation was greater than the 0.9-percentage point downward revision to productivity. In the total manufacturing sector, and in durable goods manufacturing, productivity was revised up slightly, as output was revised up by more than hours worked. Nondurable manufacturing productivity was revised up somewhat more, as output was revised up and hours worked were revised down. In all manufacturing sectors, large downward revisions to hourly compensation led to large downward revisions to unit labor costs, which fell 27.4 percent in total manufacturing in third-quarter 2020.

Nonfinancial corporate sector productivity declined 0.6 percent in the third quarter of 2020 rather than increasing 1.5 percent as previously reported, reflecting a 2.3-percentage point downward revision to output and a 0.5-percentage point upward revision to hours.

Annual averages
Table C1 presents annual average changes for the most recent 5 years for the nonfarm business sector and the total manufacturing sector. Nonfarm business sector productivity grew 2.5 percent in 2020, as output decreased 4.2 percent and hours worked decreased 6.5 percent. The 2.5-percent increase in nonfarm business labor productivity is the largest annual increase since 2010, when it increased 3.4 percent. The decline in output (-4.2 percent) is the largest annual decline in the series, which begins in 1947. The decline in hours (-6.5 percent) is the largest annual decline in this series since 2009, when the measure declined 7.1 percent.

Unit labor costs in the nonfarm business sector increased 3.8 percent in 2020, reflecting increases of 6.4 percent in hourly compensation and 2.5 percent in productivity. Real hourly compensation, which takes into account changes in consumer prices, increased 5.0 percent in 2020. This is the largest annual increase in real hourly compensation in the series, which begins in 1947.

In the manufacturing sector, productivity increased 0.3 percent in 2020, reflecting a decrease in output of 6.3 percent and a decrease in hours of 6.6 percent. The decrease in output was the largest annual decline since a decline of 12.0 percent in 2009. The decline in hours was the largest annual decline since a decline of 12.9 percent in 2009.

Manufacturing unit labor costs increased 4.4 percent in 2020, rather than increasing 7.4 percent as previously reported. Manufacturing hourly compensation increased 4.8 percent, rather than the preliminary estimate of 7.2 percent.

Quarterly and annual data for all sectors from 2018 to 2020 appear in tables 1-6. Full historical measures can be found on the Productivity and Costs home page: www.bls.gov/lpc/#data.