SERVICES SECTOR Estimation of Services Output, Intermediate Consumption and Value Added

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SERVICES SECTOR Estimation of Services Output,
Intermediate Consumption and Value Added

• International Workshop
• From Data to Accounts Measuring Production in
  National Accounting
• 8-10 June 2009, Beijing, China
• UN STATISTICS DIVISION

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Content of presentation

• Services in the System of National Accounts
• International Recommendations for Distributive
  Trade Statistics 2008
• Output estimates of particular service activities

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Services in the System of National Accounts
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Output of Services

• Two main kinds of output in the System
• Goods
• Services
• Services are the result of a production activity
  that
• Changes the conditions of the consuming units
  (transportation, cleaning, medical treatment,
  education, entertainment, etc.)
• Ownership rights can not be established over
  services
• Cannot be traded separately from their production
  
• Facilitate the exchange of products or financial
  assets (the so called margin services like
  wholesale and retail trade, insurance and
  financial services)

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Market and Non-market services

• A fundamental distinction is drawn in the System
  between producers of market and non-market
  services because of the way the output of each is
  estimated
• Market services/output
• Producers make decisions about what to produce
  and how much to produce
• Services (and goods) are sold at economically
  significant prices
• Non-market services/output
• Individual or collective services produced by
  NPISH or Government
• Supplied free, or at prices that are not
  economically significant

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Measurement of Output

• Change-effecting services
• Market services (transport, storage,
  communication, business services, other community
  social and personal services, health, education,
  etc.)
• Output is measured on the basis of revenues from
  sales
• Non-market services (public administration,
  defence, education, health, etc.)
• Output is measured as a sum of production costs
• Margin services (distributive trade, financial
  and insurance services)
• Trade margin is measured as a difference between
  the sales and the purchases of goods bought for
  resale
• Service charge for bank and insurance output

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Market Producers

• Business accounts of enterprises main source of
  data for the compilation of NA, collected through
  statistical surveys or administrative data
  sources
• Show amounts of sales and of purchases
• Output and intermediate consumption figures
• Not always available directly
• Should be calculated by statisticians
• Differences in terminology and accounting rules
• Valuation
• Time of recording

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Measurement of Output and Intermediate
Consumption of Market Producers
Sales and output
Purchases and intermediate consumption
Purchases of raw materials and supplies
Purchases of gas, fuel, and electricity
purchased Purchases of water and sewerage
services Purchases of services except rentals
Rental payments Changes in inventories of
materials, fuels and supplies
Sales (turnover) of goods and services (sold,
bartered, etc.) Receipts for a work done or
services rendered to others units (contract and
commission work, maintenance, etc.) - Purchases
of goods and services for resale in the same
condition as received Other revenues (rentals,
storage of goods, etc.) Value of own-account
fixed assets Change in work-in-progress
Change in inventories of finished goods
VA GO - IC
Intermediate Consumption
Output
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Non-market producers (1)

• The value of the non-market output provided
  without charge or at nominal costs is estimated
  as a sum of costs of production
• GO IC VA
• Intermediate consumption
• Compensation of employees
• Consumption of fixed capital
• Other taxes (less subsidies) on production
• VA can be obtained directly

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Non-market producers (2)

• If non-market producers are engaged in market
  production
• Whenever possible, separate establishments should
  be distinguished
• Receipts from sale of market output produced by a
  secondary activity
• Hint Total output (market and non-market) still
  valued at production costs
• Market output revenues from sales of market
  products
• Non-market output total output - market output

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International Recommendations for Distributive
Trade Statistics 2008 (IRDTS 2008)
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Background

• Since 1950s, UN has published international
  recommendations to establish a coherent and
  uniform measurement of distributive trade
  activity
• IRDTS 2008 adopted by the 39th session of the UN
  Statistical Commission
• Harmonized with
• ISIC, Rev.4, and CPC, Ver.2
• System of National Accounts 2008 (2008 SNA)
• International Recommendations for Industrial
  Statistics 2008 (IRIS 2008)
• Consistent with concepts, definitions and
  terminology used in statistical publications and
  regulations of other international organizations
  (OECD, ILO, Eurostat)

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Distributive Trade in NA

• Creates the necessary link between the production
  of a good in the economy and its final
  consumption
• Trade turnover/sales
• Final household consumption
• Wholesalers and retailers - considered as
  supplying services rather than goods to their
  customers by storing and making a selection of
  goods readily available
• Output of trade services measured by the trade
  margins realized on goods purchased for resale

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Scope of DTS sector

• The scope of distributive trade sector of an
  economy should be defined in terms of ISIC or a
  national classification of activities
• All resident entities recognised as statistical
  units and classifiable in section G Wholesale
  and retail trade repair of motor vehicles and
  motorcycles
• In conformity with the 2008 SNA production
  boundary all units engaged in economic activities
  within the scope should be covered
• All units irrespective of their size (with and
  without fixed location), form of economic and
  legal organization and ownership

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DT as an economic activity

• Consists of
• Provision of a service to various types of
  customers (retailers and other commercial users
  or general public) by storing and displaying a
  selection of goods and making them available for
  buying
• Provision of other services incidental to the
  sale of those goods or subordinated to the
  selling such as the delivery, after-sale repair
  and installation service
• What makes distributive trade different from
  other economic activities?
• Specificity of the production process referred to
  as Resale
• Economically significant change takes place
• Goods remain unchanged

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Statistical unit

• 2008 SNA recommends establishment as the most
  appropriate statistical unit for production and
  employment data in order to ensure homogeneous
  and geographically distributed data
• Can the enterprise also be a statistical unit for
  distributive trade?
• In majority of cases establishment and enterprise
  are the same except in the case of
  multi-establishment enterprises
• Choice may be guided by factors such as the
  purpose of study, the availability and quality of
  data, etc.
• Choice of establishment vs. enterprise reflects
  balancing of data availability against the
  homogeneity of economic activity

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Units specific to Distributive Trade

• Retail Chains
• Result of vertical integration of retail trade in
  one and the same activity class
• Department stores
• Identification of local units needs special
  attention
• Franchising
• Franchisees should be considered as separate
  units
• Market places, street markets
• Treated similarly to department stores

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Kind of activity

• General principles for determining the kind of
  activity of (any) unit
• It is determined by the kind of its principal
  activity secondary and ancillary activities are
  to be disregarded
• If a unit is engaged in several types of
  independent activities, but the unit itself
  cannot be segregated into separate statistical
  units - the largest share of value added by using
  the top-down method
• If value added cannot be determined,
  classification has to be done by using substitute
  criteria
• Why is the correct identification of the
  principal activity so important?
• Impacts on the structure of the economy and
  contribution of different activities to GDP
• Proper estimation of output

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Type of Operation and Top-Down Method in Retail
Trade
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Data sources

• Statistical surveys
• Economic censuses enumeration of all units in
  the population basis for the establishment of
  BR sampling frame for surveys
• Sample surveys collect responses from a few
  representative units scientifically selected from
  the population
• Administrative data sources
• Set up in response to legislation and/or
  regulation VAT and other tax registers, social
  security, etc.
• Administrative data sources vs. statistical
  surveys
• Advantages
• Complete coverage of units and perceived as low
  non-response
• Avoidance of response burden
• Cheaper to acquire data from an ADS than to
  conduct a survey
• Suitable for covering the smallest segment of
  units population
• Smaller sampling errors than in survey, better
  accuracy
• Disadvantages
• Discrepancy between administrative and
  statistical concepts
• Poor integration with other data of the
  statistical system

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Data items for use in DTS

• 1. Demography
• 2. Employment
• 3. Compensation of employees
• 4. Other expenditures
• 5. Turnover
• 6. Inventories

• 7. Taxes and subsidies
• 8. Output
• 9. Intermediate consumption
• 10. Value added
• 11. Gross fixed capital formation

Derived data items
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Trade margin

• Difference between the actual or imputed price
  realized on a good purchased for resale and the
  price that would have to be paid by the
  distributor to replace the good at the time it is
  sold or otherwise disposed of
• Trade Margin
• The value of sales (turnover), incl. sales at
  reduced prices
• The value of other uses of goods purchased for
  resale (IC or compensation of employees)
• - Purchases of goods and services for resale in
  the same condition as received
• Change in inventories of goods purchased for
  resale in the same condition as received
• - The value of recurrent losses due to normal
  rates of wastage

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Output of wholesale and retail trade simplified
example

• In theory output at basic price trade margin
  120 110 10
• In practice trade margin 120 100 20 if
  inventories are not properly valued
• The difference of 10 is holding gain, which is
  not part of output

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Output estimates of particular service activities
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Financial Intermediation

• Financial services may be paid implicitly or
  explicitly
• Financial services provided in return for
  explicit charges
• Charges for arrangement of loans, manage of
  investment portfolio, credit card charges ( from
  the sale, annual fee)
• Financial services provided in association with
  interest charges on loans and deposits
• FISIM
• Financial services associated with the
  acquisition and disposal of financial assets and
  liabilities in financial markets
• Debt securities that give rise to interest
  payments
• Output is a margin between different prices
• Financial services associated with insurance and
  pension schemes (treated as a loan)
• Service charge - life and non-life insurance,
  social insurance schemes

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Output of Central Bank

• Services of the Central Bank
• Monetary policy services (collective in nature,
  non-market output)
• Financial Intermediation (market output)
• Borderline cases supervisory services,
  overseeing the financial corporations in the
  country (could be both market and non-market)
• Hint If not possible to separate market from
  non-market output, the whole output of the
  central bank should be treated as non-market and
  valued at the sum of costs

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Output of Financial Intermediaries

• Output FISIM explicit service charges
• Financial Intermediation Services Indirectly
  Measured (FISIM)
• Services for which FI do not charge explicitly
• Measured as a difference between the rate paid to
  banks by borrowers and the reference rate plus
  the difference between the reference rate and the
  rate actually paid to depositors
• Statistical data required
• Average stocks of loans and deposits for the
  period and the accrued interest

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FISIM (1)

• Total FISIM FISIM (loans) FISIM (deposits)
• FISIM
• (Interest Rate on Loans Reference Rate) x
• Stock of Loans
• (Reference Rate - Interest Rate on Deposits) x
• Stock of Deposits
• Reference Rate
• A rate between bank interest rates on deposits
  and loans
• The rate prevailing for inter-bank borrowing and
  lending may be a suitable choice
• Different RRs may be needed for
  resident/non-resident lending and borrowing
• Midpoint rate between the interests on loans and
  deposits may be used for simplification

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FISIM (2)

• Basic data
• Interest rate on loans 12
• Loans 1,250
• Reference rate (RR) 4
• Interest rate on deposits 3
• Deposits 7,500
• Loans Deposits
• Actual interests paid 150 Actual
  interests received 300
• Interest to be paid at RR 50 Interest to be
  received at RR 225
• FISIM 100 FISIM 75
• Total FISIM 175

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Insurance

• Non-life insurance - provides cover to the policy
  holder against loss or damage suffered as a
  result of an accident
• Life insurance - many small payments are made
  over a period of time and either a single lump
  sum or a stream of payments is made at some
  pre-agreed time in the future
• Reinsurance insurance services between two
  insurance corporations
• Social insurance schemes employer or the
  government operates and provides benefits for a
  number of identified circumstances

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Measuring insurance output

• Non-life Insurance Output
• Total actual premiums earned (excl. prepayments
  of premiums)
• Adjusted premium supplements (equal to the
  income gained from the investment of the
  insurance technical reserves)
• Adjusted claims incurred (incl. outstanding
  claims that are not yet paid)

Life Insurance Output Total actual premiums
earned (excl. prepayments of premiums)
Premium supplements (equal investment income
earned on the reserves of the policyholders) Tot
al benefits due Change in life insurance
technical reserves


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• Thank You