Productivity Decreases 4.8% in Q4 2020; Unit Labor Costs Increase 6.8% (Annual Rates)

Nonfarm business sector labor productivity decreased 4.8 percent in the fourth quarter of 2020, the U.S. Bureau of Labor Statistics reported, as output increased 5.3% and hours worked increased 10.7%. (All quarterly percent changes in this release are seasonally adjusted annual rates, and show what the percent change would be if the quarterly rate continued for four quarters.)

The fourth-quarter 2020 decline in productivity is the largest quarterly decline in the measure since a decline of 5.1% in the second quarter of 1981. From the fourth quarter of 2019 to the fourth quarter of 2020, nonfarm business productivity increased 2.5%, reflecting a 2.7% decline in output and a 5.0% decline in hours worked. (See chart 1 and table A1.)

Unit labor costs in the nonfarm business sector increased at an annual rate of 6.8% in the fourth quarter of 2020, the combined effect of a 1.7% increase in hourly compensation and a 4.8% decline in productivity. Nonfarm business unit labor costs increased 5.2% over the last four quarters. (See chart 2 and 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 output per hour 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 these measures in the second quarter of 2020. Output and hours worked remain 2.7% and 5.0% below their fourth-quarter 2019 levels, respectively. (See chart 3.)

Manufacturing sector labor productivity increased at a 3.0% annual rate in the fourth quarter of 2020, as output increased 11.2% and hours worked increased 8.0%. Productivity increased 2.1% from the same quarter a year ago. (See chart 4, and tables A1 and 3.)
Unit labor costs in the total manufacturing sector decreased 2.4% in the fourth quarter of 2020, reflecting a 0.5% increase in hourly compensation and a 3.0% increase in productivity. Unit labor costs increased 6.5% from the same quarter a year ago. (See chart 5, and tables A1 and 3.)

The fourth quarter of 2020 is the second consecutive quarter with increases in both output and hours, following the historic declines in these measures in the second quarter of 2020. Output and hours worked remain 3.0% and 5.0% below their fourth-quarter 2019 levels, respectively. (See chart 6.)

Durable goods manufacturing productivity increased 5.3% in the fourth quarter of 2020, reflecting a 12.5% increase in output and a 6.8% increase in hours. Nondurable goods manufacturing productivity was unchanged in the fourth quarter of 2020, as output and hours both increased 9.9%. (See tables A1, 4, and 5.)

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. (See page 8.)

Revised Measures
Revised and previously published measures for the third quarter of 2020 are shown in tables A2 and B1 and cover the following major sectors: nonfarm business, business, manufacturing, and nonfinancial corporations.

In the third quarter of 2020, nonfarm business productivity was revised up 0.5 percentage point, to an increase of 5.1%, rather than increasing 4.6% as previously reported. (See table B1.) Unit labor costs in the nonfarm business sector decreased 7.0% in the third quarter, rather than decreasing 6.6% as previously reported.

In the manufacturing sector, productivity in the third quarter of 2020 was revised up 0.3 percentage point, to an increase of 20.2%. Manufacturing unit labor costs decreased 12.4%, a 0.3 percentage point downward revision from the previous estimate.
In the nonfinancial corporate sector, productivity was revised up 0.7 percentage point in the third quarter of 2020, to an increase of 1.5%. Output and hours worked increased 34.3% and 32.3%, respectively. (See table A2.)

Annual Averages

Table C1 presents annual average changes for the most recent five years for the nonfarm business sector and the total manufacturing sector. Nonfarm business sector productivity grew 2.6% in 2020, as output decreased 4.2% and hours worked decreased 6.6%. The 2.6% increase in nonfarm business labor productivity is the largest annual increase since 2010, when it increased 3.4%. The decline in output (-4.2%) is the largest annual decline in the series, which begins in 1947. The decline in hours (-6.6%) is the largest annual decline in this series since 2009, when the measure declined 7.2%.

Unit labor costs in the nonfarm business sector increased 4.3% in 2020, reflecting increases of 7.0% in hourly compensation and 2.6% in productivity. Real hourly compensation, which takes into account changes in consumer prices, increased 5.7% in 2020. This is the largest annual increase in real hourly compensation in the series, which begins in 1947.

In the manufacturing sector, productivity declined 0.2% in 2020, reflecting a decrease in output of 6.5% and a decrease in hours of 6.4%. The decrease in output was the largest annual decline since a decline of 12.0% in 2009. The decline in hours was the largest annual decline since a decline of 12.9% in 2009.

Manufacturing unit labor costs increased 7.4% in 2020. Manufacturing real hourly compensation increased 5.9% — the largest annual increase in the series, which begins in 1987.