The ONS Productivity Handbook

1 The ONS Productivity Handbook A Statistical Overview and Guide Edited by Dawn Camus Office for National Statistics Crown copyright 2007 Published with the permission of the Controller of Her Majesty s Stationery Offi ce (HMSO) You may re-use this publication (excluding logos) free of charge in any format for research, private study or internal circulation within an organisation. You must re-use it accurately and not use it in a misleading context. The material must be acknowledged as Crown copyright and you must give the title of the source publication. Where we have identifi ed any third party copyright material you will need to obtain permission from the copyright holders concerned. This publication is also available at the National Statistics website: For any other use of this material please apply for a Click-Use Licence for core material at or by writing to: Offi ce of Public Sector Information Information Policy Team St Clements House 2 16 Colegate Norwich NR3 1BQ Fax: 01603 723000 E-mail: hmsolicensing@cabinet-offi First published 2007 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, NY 10010, USA Companies and representatives throughout the world.

2 PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin s Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 978-0-230-57301-7 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. 10 9 8 7 6 5 4 3 2 1 16 15 14 13 12 11 10 09 08 07 Printed and bound in Great Britain by Hobbs the Printers Ltd, Totton, Hampshire. A National Statistics publication National Statistics are produced to high professional standards set out in the National Statistics Code of Practice.

3 They are produced free from political infl uence. About the Office for National Statistics The Offi ce for National Statistics (ONS) is the government agency responsible for compiling, analysing and disseminating economic, social and demographic statistics about the United Kingdom. It also administers the statutory registration of births, marriages and deaths in England and Wales. The Director of ONS is also the National Statistician and the Registrar General for England and Wales. Contact points For enquiries about this publication and general enquires, contact the National Statistics Customer Contact Centre. Tel: 0845 601 3034 (minicom: 01633 812399) E-mail: Fax: 01633 652747 Post: Room 1015, Government Buildings, Cardiff Road, Newport NP10 8XG You can also fi nd National Statistics on the Internet at: Front cover illustration: Corbis Contents Acknowledgements and Contributors vii List of Tables and Figures ix Preface xiii Overview xv chapter 1: Introduction 1 Dawn Camus Defi ning Productivity 2 Why does Productivity matter?

4 2 Constructing Productivity statistics 2 Measures of Productivity 5 Conclusion 8 References 9 chapter 2: ONS Framework for Productivity 11 Tony Clayton Established and New Productivity Frameworks 12 Key users 12 Productivity by activity 13 Productivity by region 14 Measurements required in Productivity statistics 15 Consistency in Productivity statistics 16 Further use of the framework 18 References 18 chapter 3: Productivity Theory and Drivers 19 Dawn Camus and James Watson The Relationship between Productivity Theory and Policy 20 The importance of Productivity and competitiveness 20 The Government s five driver framework 20 Multi-factor Productivity 21 The growth accounting framework 21 Future work 24 References 25 Contents The ONS Productivity Handbook chapter 4: Output Measures.

5 UK National Accounts 27 Sanjiv Mahajan Creating Consistent Output Data 28 The basic framework of the UK National Accounts 28 Prices used to value the products of economic activity 32 Gross domestic product (GDP) 32 Annual chain-linking 38 Index numbers and price indices 39 Input-Output Annual Supply and Use Tables 39 Future plans 42 References 43 chapter 5: Input Measures: Labour and Capital 49 Sumit Dey-Chowdhury, Peter Goodridge and Gavin Wallis The importance of labour and capital inputs 50 Labour input 50 Measurement of quality adjusted labour input 59 Measurement of capital input 62 Future developments 69 References 70 chapter 6: Quality Adjustment 71 Fenella Maitland-Smith, Fathimath Ali, Stephen Almond, Isabell Kohten and Geoff Tily Refining Productivity Measurement through Quality Adjustment 72 Quality.

6 Concepts and defi nitions 72 Capturing quality change in National Accounts volume measures 74 Quality adjustment of public sector Productivity 77 Conclusion 80 References 82 chapter 7: Productivity : Whole Economy and Multi-Factor 83 Peter Goodridge, Geoff Tily and Dawn Camus Measures of Productivity for the whole economy 84 Whole economy labour Productivity 84 Multi-factor Productivity 89 Looking forward 95 References 97 iv The ONS Productivity Handbook Contents chapter 8: Productivity : Market Sector, Services and Industries 99 Catherine Marks, Jonathan Haskel and Keith Brook Measuring Productivity of Subsections of the Economy 100 Market sector gross value added Productivity measures 100 Service sector Productivity 103 Productivity by industry 107 References 110 chapter 9: Public Service Productivity 117 Fathimath Ali and Stephen Almond Measuring Productivity of Public Services: the Challenges and Developments in Methodology 118 Measuring public service output 118 Measuring public service inputs 129 Measuring Public Service Productivity 133 Triangulation 136 Conclusions 137 References 138 chapter 10.

7 Micro, or Firm Level, Productivity 139 Joe Robjohns and Tony Clayton The History of the Business Data Linking Project 140 Areas of Productivity Research 140 Advantages of microdata analysis 142 The available data sets and their use in Productivity research 142 Issues with microdata analysis 143 Producing macro statistics from microdata 144 Accessing data 144 Conclusion 144 References 145 chapter 11: Regional Productivity 147 Claire Swadkin and Dev Virdee The Link between Regional Productivity and Policy 148 Producing regional statistics 148 Measuring regional Productivity 149 Measure of output: gross value added 152 The input measure: labour 153 Future plans 154 References 155 v Contents The ONS Productivity Handbook chapter 12: International Comparisons of Productivity 157 Peter Goodridge and Paul Schreyer How and Why Organisations Create International Comparisons of Productivity 158 Regional and international Productivity comparisons the OECD perspective 158 ONS s International Comparisons of Productivity 165 The EU KLEMS project 169 References 171 chapter 13: Productivity .

8 The Way Forward 173 Dawn Camus, Fathimath Ali, Stephen Almond and Andrew Machin Plans for Continuing improvement in Statistics and Analysis 174 Labour market statistics 174 Whole economy and market sector Productivity 174 Public service Productivity work programme 176 References 178 Glossary 179 Index 185 vi Acknowledgements and Contributors Editor: Dawn Camus Authors: Fathimath Ali Stephen Almond Keith Brook Department of Trade & Industry Dawn Camus Tony Clayton Sumit Dey-Chowdhury Peter Goodridge Jonathan Haskel Queen Mary, University of London Isabell Kohten Department of Trade & Industry, formerly ONS Andrew Machin Sanjiv Mahajan Fenella Maitland-Smith Catherine Marks Joe Robjohns Paul Schreyer Organisation for Economic Co-operation and Development Claire Swadkin Geoff Tily Dev Virdee Gavin Wallis HM Treasury, formerly ONS James Watson Department of Trade & Industry With thanks: Jon Beadle Ivan Bishop Department of Trade & Industry Steve Drew Andrew Evans David Knight Benjamin Marriott Department of Trade & Industry Colin Mowl Tuu-Van Nguyen Nicholas Oulton Bank of England Geoff Reed Department of Trade & Industry Diana Shaw Sally Srinivasan Bank of England All authors and contributors are from the Office for National Statistics unless otherwise stated.

9 ONS is grateful for contributions to this book by staff from several UK government departments, the OECD and independent academics. All responsibility for any errors or omissions is, of course, our own. Acknowledgements and Contributors The ONS Productivity Handbook viii List of Tables and Figures Tables chapter 1:Table : chapter 4: chapter 5: Table 5A: Table : Table : Table : Table : Table : chapter 7: Table : Table : Table : Table : Table : Table : Table : Table : Table : Table : chapter 8: Introduction Summary of Productivity measures 9 Output Measures: UK National Accounts Appendix Table 4A: Classification of Input-Output industry/product groups by Standard Industrial Classification (2003) and NACE 44 Input Measures: Labour and Capital The UK SIC (2003) 54 Estimating the Gaps in LFS Coverage 58 Labour Market Estimates using the DWP Family Resources Survey 58 Labour Market Estimates using the Communal Establishments Pilot Survey 58 Labour characteristics 60 Declining balance rates by asset type 65 Productivity .

10 Whole Economy and Multi-Factor Ten-year averages, United Kingdom 87 Productivity and output for each quarter of the 20th century 87 Decomposition of Productivity growth by average percentage per annum 89 Decomposition of output growth, average percentage growth per annum, 1997 2005 93 Decomposition of labour Productivity growth, average percentage growth per annum, 1997 2005 94 Growth in labour composition, per cent per annum, 1997 2005 94 Decomposition of output growth, average per cent per annum, 1997 2000 95 Decomposition of output growth, average per cent per annum, 2001 2005 95 Decomposition of labour Productivity growth, average per cent per annum, 1997 2000 96 Decomposition of labour Productivity growth, average per cent per annum, 2001 2005 96 Productivity : Market Sector, Services and Industries Appendix Table 8A: Measurement of Service Sector Activity by SIC (2003) 112 List of Tables and Figures The ONS Productivity Handbook chapter 9: Public Service Productivity Table : Examples for inputs, activities, outputs and outcomes 120 Table : Eurostat Handbook recommendations for government output 122 Table 9A: Estimated impact on NHS output growth using various methods of quality adjustment 128 Table : Quality Criteria for deflators for government services 130 Table 9B: Estimating NHS labour inputs 132 Figures chapter 2: ONS Framework for Productivity Figure : Disaggregation of Productivity data by activity 13 Figure : Disaggregation of Productivity data by geography 14 Figure : Labour Productivity measures 15 Figure : Multi-factor Productivity measures 16 chapter 4: Output Measures: UK National Accounts Figure : Availability of the detailed components of UK GDP 29 Figure.