EU KLEMS Growth and Productivity Accounts

1. EU KLEMS Growth and Productivity Accounts Mary O’Mahony (University of Birmingham and National Institute of Economic and Social Research) Presentation at CMFB Meeting Luxembourg, 28 June 2007 This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".

2. What is in the March 2007 version of the EU KLEMS Database? • Systematic data collection based on national accounts and complementary official sources (LFS and other surveys) • Long time coverage 1970-2004, with greatest detail for post-1995 • Harmonized methodologies on industry classification, capital and labour input, deflation and aggregations (e.g. market economy, market services, ICT producing vs. using) • Decomposition of capital (ICT and other) and labour input (skills, age, gender) • Broad coverage of EU countries: • Growth accounts coverage of “old” EU-10 (excl. GR, IR, LU, SE, PT) plus 5 new member states (incl. PL, SK, HU, CZ and SI) & Euro area • Limited coverage of other 5 other “old” EU countries and 5 new member states (CY, MT, LT, LV and EE) • Also comparisons with U.S. and Japan

3. What the data tell us • Sector Contributions to Labour Productivity Growth in Market Economy Confirm Existing Views • The EU-US growth differential is not in manufacturing and minor in ICT production • but huge in market services • Country contributions • Ireland, Greece at top end, Finland, Sweden also high • Spain, Italy – very low • Sources of growth • Employment rising in EU;average skill levels also rising but at decreasing rate since 1995 • Slightly smaller contribution from ICT to growth compared to US • But EU falls behind US in multi factor productivity growth, again mainly in market services. • Labour Productivity growth shows some signs of increasing in EU in recent years - If changes persist need to understand quickly country/industry location and sources of growth

4. Milestones on EU KLEMS DatabaseMarch 2006 – May 2007 • End of March 2006 and November 2006: restricted release of preliminary analytical database, round of feedback from NSIs and others • Early March: green light from DG ECFIN and DG Research for release at Commission premises in Brussels • March release is analytical module of EU KLEMS (uses feedback from NSI’s but is only research database, not official statistics)

5. Statistical vs. analytical modules of database Analytical module of the database • Core of the EU KLEMS database • Uses “best practice” techniques in area of growth accounting • Focuses on international consistency • Aim is full coverage (country * industry * variable) for revision period • Consider alternative or pioneering assumptions (measurement of skill levels, construction of capital services).

6. Statistical vs. analytical modules of database Statistical module of the database: • Developed parallel to the analytical module • Data consistent with those published by NSIs • Methods according to rules and conventions on national accounts, supply and use tables, commodity flow methods, etc. (SNA 1993, ESA 1995) or at least supported by NSI’s • Statistical module meets statistical standards of NSI's and Eurostat and can eventually be incorporated in their present publication programme and in New Cronos.

7. Feedback from NSI’s: Many comments focused on differences national accounts versus EU KLEMS (I) • Differences include: • Revision dates • Aggregation methods, within country and EU totals • National accounts complemented with other sources (e.g censuses) • Adjustments for FISIM (e.g. UK) • EU KLEMS - headcounts (adjustments from jobs for AT,ES, UK) • Hours for self-employed • leave and unregistered work has been added to adjust NA data to actual hours • Plus general adjustments to ensure plausibility • Generally complementary, national accounts and growth accounts provide very useful check results

8. Future work on Analytical module (until end of project) • Update to 2005 • Incorporate revisions to national accounts • Expand data for some countries, e.g. Ireland, Greece, Portugal • Main focus on Levels estimates • Labour productivity • Levels of capital intensity and skill intensity • Link to microdata • firm dynamics – entry/exit, concentration, firm age • labour force data – migration, training

9. Development of analytical module: the future of EUKLEMS • Analytical module: Central development will remain necessary for time being, probably by EU KLEMS consortium (or sub-group). Requires: • Continuous updates (of 31-industry growth accounts and 60-industry labour productivity accounts) • Extension/improvements in terms of measurement of levels, non-market industries, intangible assets • Dependent on financial support from European Commission and other parties

10. Development of statistical modules • Development of statistical modules is separate and depends on own resources from NSI's. • Feedback from NSIs suggest support for development of KLEMS growth accounts in conjunction with national accounts but in many cases statistical module cannot go beyond official national accounts: • As published by NSI or transferred to Eurostat • Will leave many statistical modules rather empty, and will not go beyond labour productivity • Limited or no resources for most NSI’s to work on productivity numbers • Most NSI’s (but with some exceptions) cannot promise implementation of KLEMS account in their statistical system

11. Reactions from NSI’s (summarized in EU KLEMS Statistical Progress Report, May 2007) • Options for statistical module: According to Eurostat/EU KLEMS letter (29 November 2006): • Integrate analytical and statistical module • Use (modified) subset of data from analytical module in statistical module • No data from analytical module in statistical module • 1. Acceptance of analytical module as statistical, but with flagging • Czech Republic, Denmark, Finland, Slovenia • 2. Modified subset of data • Estonia, Italy • 3. No Analytical module data except official data (either own country official or data transferred according to ESA) • Austria, Belgium, France, Germany, Hungary, Netherlands, Poland, Spain, Sweden • Not clear or in progress • Greece, Ireland, Portugal, Slovak Republic, UK

12. Strategy with regard to statistical module • Follow-up contact between consortium members and NSI on details of implementation: • Which series precisely to include: 1. Non-official but accepted data (grey) 2. Not accepted data (should be removed) 3. Official data that can stay in (black) 4. Own data of the statistical office that should replace EU KLEMS data (blue) • Check to include investment, capital stocks and labor composition data in public version • What time frame for publication? • Who does what? (NSI, consortium member, joint effort) • The development of the statistical module is crucial to move EU KLEMS beyond a research database • EU KLEMS consortium partners are willing to provide advice and help