Concept guide · Labour & Productivity
Labour Productivity & Unit Labour Costs
Real output per hour, hourly compensation, annualised growth and their links to inflation and margins.
What it measures
Labour productivity measures inflation-adjusted output per labour hour. Unit labour costs represent hourly compensation divided by labour productivity. Higher productivity can reduce labour cost per unit even when hourly pay rises.
How it is calculated
Labour productivity = real output ÷ hours worked. Unit labour costs = hourly compensation ÷ labour productivity. Quarterly U.S. releases often report seasonally adjusted annualised rates. An annualised 3.6% is not the same as a 3.6% increase in a single quarter.
Why markets care
Sustainable increases in productivity can support output and company margins while moderating some producer labour costs. However, unit labour costs are not the consumer price index, and market reactions still depend on demand, interest rates and valuations.
An example
If output rises 4% and hours increase 1% over the same period, output per hour increases by about 2.97%. If compensation per hour rises 2%, unit labour costs fall by approximately 0.94%. This is an illustrative calculation, not a published quarterly result.