Productivity falls, labor costs rise

Nonfarm business sector labor productivity decreased 2.5 percent in the first quarter 

of 2020, the U.S. Bureau of Labor Statistics reported today, as output decreased 6.2 

percent and hours worked decreased 3.8 percent. (All quarterly percent changes in this 

release are seasonally adjusted annual rates.) From the first quarter of 2019 to the 

first quarter of 2020, productivity increased 0.3 percent, reflecting a 0.1-percent 

increase in output and a 0.2-percent decrease in hours worked.

Unit labor costs in the nonfarm business sector increased 4.8 percent in the first 

quarter of 2020, as hourly compensation increased 2.2 percent and productivity 

decreased 2.5 percent. Unit labor costs increased 1.5 percent over the last four 

quarters. 

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. 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. 

The 2.5-percent decline in nonfarm business sector labor productivity in the first 

quarter of 2020 was the largest quarterly decline since the fourth quarter of 2015, 

when output per hour decreased 2.9 percent. It reflects the largest decline in output 

since the first quarter of 2009 (-6.5 percent) and the largest decline in hours worked 

since the third quarter of 2009 (-4.4 percent). Productivity had increased in 15 of 

the 16 quarters between fourth-quarter 2015 and first-quarter 2020.

Manufacturing sector labor productivity decreased 3.3 percent in the first quarter of 

2020, as output decreased 7.1 percent and hours worked decreased 3.9 percent. Total 

manufacturing sector productivity declined 1.7 percent over the last four quarters, 

as output decreased 2.4 percent and hours worked decreased 0.7 percent. Productivity 

decreased 8.3 percent in the durable manufacturing sector in the first quarter of 2020, reflecting an 11.9-percent decrease in output and a 3.9-
percent decrease in hours worked. Productivity increased 2.1 percent in the nondurable 

manufacturing sector, as output decreased 1.8 percent and hours worked decreased 3.8 

percent. Unit labor costs in the total manufacturing sector increased 3.6 percent in 

the first quarter of 2020, and increased 2.9 percent from the same quarter a year ago.