Supplementary memorandum from the Office
for National Statistics
Question 118: In which Len Cook was asked
to provide a note giving an approximate timetable for enhancing
Productivity measures the output produced per
unit of input, primarily focusing on the two inputs labour and
capital. The output measure used is real value added, which at
the whole economy level is real GDP. Headline productivity figures
usually refer to labour productivity, measuring output per unit
of labour. There are a number of ways of measuring the labour
input: numbers of jobs, numbers of workers (who may have more
than one job) or hours worked.
Another productivity measure is total factor
productivity (TFP), which takes account of inputs in addition
to labour. A source of output growth is enhancement of the capital
stock through investment and TFP takes account of this by combining
both capital and labour inputs when dividing output. An alternative
view of TFP is the growth in output that cannot be explained either
from changes in labour input or from the capital stock. To quantify
the input of the capital stock into production, a measure of the
flow of productive input of the capital stockcalled capital
Productivity can be measured for the whole economy,
main subsectors such as manufacturing and a detailed industrial
breakdown is also available. Industrial analysis of TFP is also
possible. Such analysis can extend beyond capital and labour inputs,
to take account of how one industry uses the products of another
industry in its own production. Then productivity measures can
take account of efficiency changes in the use of materials.
There is considerable interest in comparing
whole economy productivity measures across countries. To make
international comparisons of productivity both outputs and inputs
have to be computed in a comparable manner and adjusted for differences
in price levels. Such statistics are taking advantage of the increased
comparability of GDP and worker numbers across major economies.
An expanding area of productivity research is
the analysis of business microdata, analysing firms' survey returns.
To allow this, secure systems for academic researchers to access
confidential business data have been set up at ONS. This allows
productivity to be computed for individual businesses (though
analysis is published at highly aggregate level). A second statistical
innovation is to link surveys together in an attempt to improve
understanding of the determinants of productivity growth. For
example, the ONS Annual Business Inquiry (ABI) covers total output
and employment and, by linking this to the ONS e-Commerce survey,
firm-level productivity measures can be related to that firms'
Measurement issues are being addressed through
improvements in methods and statistical sources in work across
ONS. It is also being informed by debates outside ONS, through
links with UK and international experts. These statistical issues
in productivity can be differentiated from more complex conceptual
Measurement of output. Manufacturing
and other production industries have traditionally had good output
measures: the nominal value of output is well-defined and appropriate
price indices are available to calculate real values. Regularannualupdating
of weights for each industry in aggregated output measures will
improve these statistics. Service industries have more statistical
issues remaining. Measures of price change are being developed.
In some services, such as finance or some parts of government,
output measurement is more complex, with conceptual issues about
Measurement of inputs. Changes in
the economy sometimes manifest themselves in the input measures.
On labour input, changes in working patterns towards part-time
work imply hourly productivity measures are necessary for labour
input. When output in one industry increases more than another
despite similar changes in hours worked it may be because more
skilled labour is being used, suggesting further refinements.
"Double-deflation", a process that measures the real
changes in goods and services that input into production, can
provide measures of the inputs other than labour and capital.
This would help analyse how much of the growth in high technology
output comes from a main input in production, the semiconductor.
However, conceptual issues remain, such as the role of intellectual
property, eg patents and brands.
Consistency between the output and
input measures. Productivity measures are very sensitive to the
numerator and denominator referring as closely as possible to
the same economic agents or sectors. Only then can output change
confidently be related to the input change in the productivity
measure. Such issues relate to statistical sources and development
to sources is being informed by the needs of productivity measures.
Some conceptual issues remain here, such as the effect of increased
globalisation in production processes on relating domestic output
to domestic inputs.
By addressing the statistical measurement issues,
the productivity measures available to analysts are improving.
Currently, the ONS publishes each quarter (ref 1):
labour productivity, as output per
job, with detailed industrial breakdown for production industries;
labour productivity as output per
hour with industrial breakdown;
regional productivity measuring nominal
output per worker on a residence basis;
unit wage costs, an index of wage
costs in terms real output; and
experimental series for output per
job and hourly productivity for Agriculture, forestry and fisheries;
Distribution (including wholesale and retail); and Total services.
Half-yearly, ONS also publishes international
comparisons of productivity: the output per worker series is a
National Statistic, the hourly measure is experimental (1).
The ONS expanded its productivity measures in
2001, largely due to the benefits of improvements in consistency
between output and input measures:
April 2001, productivity measures
used the results of new survey instruments to improve the consistency
between the output and labour input data (2).
Increased consistency allowed new
measures of output per hour to be published, also in April (2).
ONS took over from the DTI the publication
of international comparisons of productivity in October 2001 with
improvements to the methodology (3).
Improvements in the output measures
for servicesthe Index of Services (4)meant experimental
quarterly productivity measures for the total services, agriculture
and for wholesale and retail trades were published (5).
In 2002, the developments have focused on improving
output and input measures, taking on results of ONS development
work in service sector measures and the results of work on capital
input and skills. Also, increased use of business microdata by
academic researchers seconded to ONS is providing first results.
The ONS/DTI Productivity Workshop
(November) saw results on total factor productivity published.
The policy interest in TFP results from the accounting for growth
in terms of the key drivers. The paper (6) indicates the contribution
of skills to growth and the capital stock.
Annually re-weighted output indices
are to replace existing fixed based indices in the National Accounts
in 2003. The structure of production changes over time and re-weighting
regularly through the process of chain-linking can improve the
precision of output growth estimates.
At the ONS/DTI Workshop, labour productivity
measures from the Annual Business Inquiry were also presented.
The paper (12) discusses the potential of ABI in producing labour
productivity measures at more disaggregate level including in
some service sectors.
Measurement of public sector productivity
was discussed in a paper in May 2002 published in Economic Trends
on improved output measures. The UK leads in the development of
measures of non-market, output, using indicators that track output
measured using counts of various government services (7).
Productivity analysis by academic
researchers based in ONS using plant-level microdata is continuing
to extend our understanding of business level productivity change
(8). The papers presented at the ONS/DTI Productivity Workshop
explored the link between the innovations of a firm and its performance,
as measured by productivity (10). Also, worker data was linked
to business data (11).
In April 2002, Productivity Measures: ONS strategy
was published, which reflected the views gathered from a consultation
with key users (9). The Strategy outlines works that ONS plans
to take forward in the next three years. The table below draws
on this and other work areas in ONS.
|Labour hour measures, adjusted for skills
||A methodology so hours worked takes account of changes in the composition of labour skills over time has been developed.
||As experimental series is planned for end of 2003.
|Constant price input-output tables||Double deflation of output allows the real changes in goods and services used in production to be measured.
||Results in 2003.|
|Capital services||The methodology of a volume index has been developed.
||First set of estimates to be published in mid-2003.
|Chain-linked output measures||Annual re-weighting of industry output will mean that the changes in industrial structure will be up-to-date.
||Autumn 2003 in the Blue Book.|
|Index of Services to be developed enlarging coverage of monthly indices.
||Work is ongoing (see ref 4).|
General Government Output
|Output measures have been developed for different public sectors such as education, police and road.
||Work is ongoing.|
|Reconciliation of output and input series
||Review the current methods and sources used in the National Accounts employment statistics studying other countries' experiences.
||A report by summer 2003. |
|Developing business microdata for productivity measures
||Micro analysis of business performance; some macro analysis by aggregating over businesses.
||The largest microdata project Professor Jonathan Haskel's team funded jointly by DTI, HMT and ONSis due to be completed by the end of 2003.
(1) Productivity First Release, Quarterly, http://www.statistics.gov.uk/statbase/Product.asp?vlnk=7476.
(2) Chris Daffin, 2001, "Introducing new and improved
labour productivity data." Economic Trends no 570. http://www.statistics.gov.uk/CCI/article.asp?ID=86&Pos=1&ColRank=1&Rank=128.
(3) Craig Richardson, 2002, "International comparisons
of productivity." Economic Trends no 577. http://www.statistics.gov.uk/CCI/article.asp?ID=84&Pos=9&ColRank=1&Rank=128.
(4) Steve Drew, Rob Pike, 2002, "Experimental monthly
index of services." Economic Trends no 583. http://www.statistics.gov.uk/CCI/article.asp?ID=138&Pos=1&ColRank=2&Rank=432.
(5) Chris Daffin, Geoff Reed, Prabhat Vaze, 2002, "Labour
productivity measures for the non-production industries."
Economic Trends no 579. http://www.statistics.gov.uk/cci/article.asp?id=144.
(6) ONS/DTI Productivity Workshop programme and abstracts
(7) Alwyn Pritchard, 2001, "Measuring productivity
in the provision of public services." Economic Trends no
570. Alwyn Pritchard, 2002, "Measuring productivity change
in the provision of public services." Economic Trends no
(8) Matthew Barnes, Ralf Martin, 2002, Business data
linking: An introduction. Economic Trends no 581. http://www.statistics.gov.uk/CCI/article.asp?ID=135&Pos=4&ColRank=2&Rank=768.
(9) Eunice Lau, 2002, Productivity measures: ONS strategy.
Economic Trends no 581. http://www.statistics.gov.uk/CCI/article.asp?ID=145&Pos=&ColRank=2&Rank=208.
(10) Jonathan Haskel and Sonia Pereira, 2002, "Skills
and productivity in the UK using matched firm and worker data".
(11) Chiara Criscuolo, Jonathan Haskel, 2002, "Innovations
and Productivity Growth in the UK". http://www.statistics.gov.uk/cci/article.asp?id=246.
(12) Chris Daffin and Eunice Lau (2002) "Labour
Productivity Measures from the Annual Business Inquiry".