Compensations of capital and labour

The compensation of labour force, i.e. wage and salaries, is the price of labour input from the perspective of the producer. When examining the effect of the change in the quality of labour force to the change in productivity, the hours worked by employees with different types of educational levels are weighted by the share of this employee group’s compensations of labour force in all compensations of labour force.

When compensations of labour force are deducted from the industry's value added, capital compensation remains. When examining the effect of capital services on productivity, the amount of capital compensations is used for calculating weights of capital good types by industry (cf. compensations of labour force). The amount of compensations of capital is also used in the calculation of the internal rate of return.