Measurement of Government Output and Productivity for the National Accounts: Tony Atkinson

Background SNA/Eurostat Revisions Political salience of public sector Comparing economic performance

ONS Programme of Introducing Direct Output Measures 1998-

Education: 1963-2003 GDP Input index With quality adjustment 300 280 260 GDP 240 220 Input index 200 180 160 With quality adjustment 140 120 Direct output measure 100 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

Key Messages of UK January 2005 Report Cannot go back to assuming output=input ONS among pioneers, but “first generation” methods need to be refined Report sets out a principled approach Improve measures of government inputs as well as outputs Need for increased statistical resources to be allocated to measuring government outputs and inputs

Principles Output A: Government non-market output should, as far as possible, be measured following a procedure parallel to that adopted for market output. B: Output should in principle be measured in a way that is adjusted for quality. C: Account should be taken of the complementarity between public and private output. D: Formal criteria should be established for extending direct output measures to further services. E: Measures should cover the whole of the UK.

Principles Inputs and Productivity F: Measures of inputs should be as comprehensive as possible, and should include capital services. G: Criteria should be established for pay and price deflators applied to input spending series. H: Independent corroborative evidence should be sought on government productivity, as part of a process of “triangulation”. I: Explicit reference should be made to the margins of error surrounding national accounts estimates.

Measuring outputs “First generation” direct measures of government output were pioneering, but revealed the need for major improvements, improvements that are in part already underway. Output indicators have been limited in their coverage of activities; too aggregate; inappropriate classifications have been adopted; geographical coverage of the UK has been incomplete; indicators affected by changes in the machinery of government; there have been issues of timeliness.

An illustration: social services

Measuring inputs Examination of data flows required to measure inputs has led us to identify the following issues: complex flows involving multiple suppliers; problems in data classification, necessary to deflate inputs and measure productivity; poor timeliness and periodicity; no clear line of sight from initial data supplier to ONS end user, new data system should rectify a number of these problems but has to be implemented in a way that recognises needs of ONS .

Some conceptual issues 1993 SNA “There is no mystique about non-market health or education services which make changes in their volume more difficult to measure than volume changes for other types of output, such as financial or business services”. “In principle, volume indices may always be compiled directly by calculating a weighted average of the quantity relatives for the various goods or services produced as outputs using the value of these goods and services as weights.”.

But ? Marginal cost Marginal valuation Marginal cost Service 1 Service 2

But ? The value of property protected by the fire service has risen by x% per annum more than the GDP deflator. Should this be treated as a quality improvement?

After the Review: ONS established Centre for the Measurement of Government Output Work in UK Departments and Devolved Administrations Eurostat OECD National Accounts Working Party (SNA Revision)