Labor Composition and the Recent Productivity Acceleration: Evidence From a Prototype Quarterly Industry Dataset

Over the medium- and long-term horizons, the contribution of labor composition to labor productivity growth lags individual and societal investments in human capital and other demographic changes. At higher frequencies (e.g., quarterly), labor composition impacts labor productivity growth via short-run labor market dynamics that trade off skills to meet prevailing economic conditions. We employ a newly developed BEA research dataset on quarterly industry-level labor composition and find that: (1) at the quarterly frequency since 2005, labor composition growth accounted for about 14% of aggregate labor productivity growth (16% from 2005Q2 to 2019Q3 and 10% from 2019Q4 to 2024Q4); (2) small aggregate contributions of labor quality mask industry-level heterogeneity; and (3) at the higher frequency, results indicate that labor composition had important momentum at the end of 2024 that explains all of the late-period ALP acceleration. This last finding suggests that measuring industry-level labor quality could add useful information to analysis of the business cycle.