Statistical Classifications Systems Part II

1. Statistical Classifications SystemsPart II Md. DilderHossain

2. ISIC: scope and purpose • International Standard International Classification of all Economic Activities(ISIC) - A standard classification of productive economic activities. • Productive activities – production of goods and services • Main purpose of ISIC is to provide a set of activity categories for: • the data collection • presentation of statistics according to such activities

3. ISIC: scope and purpose • ISIC divides statistical data into categories that are homogeneous with respect to economic activities • ISIC – a classification according to kind of economic activity, not a classification of goods and services

4. Economic activities • Economic activity is a process resulting in a certain type of products, which involves an input of resources and a production process. • Principal activity • Secondary activity • Ancillary activity

5. Economic activities (contd.) • Principal activity contributes most to the total value added (VA) of the entity under consideration. • Secondary activity is activity with less VA than the principal activity • Ancillary activity provides a supporting service without VA of itself. [Ex: Promoting sales, Auditing and accounting, Hiring and in-house training employees, Cleaning & maintenance of buildings, In house transportation]

6. Statistical units • Economic statistics describe the activities of economic transactors (for example: non-financial enterprises, financial institutions, government, household etc.) and the transactions (intermediate and final consumption, capital formation etc.) that take place between them. • To create statistics that are consistent across entities and internationally comparable, it is necessary to define and delineate standard statistical units.

7. Statistical units • Economic entities have numerous characteristics and a variety of data are required about them that may be classified in many ways • Among the most important of which are by: • Institutional sector • Activity • Geographical region

8. Statistical units • Form the building blocks for classification. • A statistical unit is the basic entity for which information is to be collected and analyzed • Legal units: legal entity recognized by law or society independently of the persons or institutions that own them or are members of them. • Legal entity owns goods or assets, incur liabilities, enter into contracts. Ex; corporation

9. Statistical units • An institutional unit is capable of: • Owning assets • Incurring liabilities • Engaging in economic activities • Engaging in transactions • Carrying out contracts • Entering into legal contracts

10. Statistical units • An institutional unit: • The core unit (legal entity) of the SNA • Units which have a complete set of accounts and autonomy of decision • private and public companies • independent cooperatives or partnerships • independent public enterprises; • non-profit institutions • agencies of general government

11. Statistical units An institutional unit: • Units which do not necessarily keep a complete set of accounts, but which by convention are deemed to have autonomy of decision: • households

12. Statistical units • Enterprise: • An Enterprise is an institutional unit producing goods or services • Benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resources. • Carries out one or more activities at one or more locations. • Enterprise group: an association of enterprises bound together by legal and/or financial links

13. Statistical units • Establishment: • An Establishment is an enterprise or part of enterprise • situated in a single location • carrying out only a single productive (non ancillary) activity • A Local unit is an enterprise or part thereof situated in a geographically identified place

14. Statistical units • A Kind-of-activity-unit (KAU) is a part of an enterprise contributing to the performance of an activity at class level (four digits) of ISIC/NACE and corresponds to one or more operational subdivisions of the enterprise

15. Statistical units • Problems with Enterprises • May engage simultaneously in different kinds of productive activities and/or • Produce different kinds of goods and services

16. Statistical units Example: SHARP Corporation • Head Office (Osaka) • Appliance Systems Group (Osaka) • Corporate Research & Development Group (Nara) • Information Systems Group (Nara) • Printing & Reprographic Systems Group (Nara) • Multimedia Systems Business Development Center (Tokyo)

17. Statistical units • Enterprise: autonomous in financial and investment decision-making and in allocating resources, but may not be homogeneous in activities or location • Kind-of-activity unit: homogeneous in its activities but not in location • Local unit: homogeneous in location but may not be homogeneous in activities • Establishment: homogeneous in both activity and location

18. Statistical units • For economic analysis, two main types of data are required to describe the economic activities of the units of which the economy is composed: • Financial statistics • Production statistics classified by industry and in some countries by geographical area. • These data are integrated into the SNA • Thus, two main statistical units need to be delineated: • Enterprise – for the compilation of financial statistics • Establishment – for the compilation of production statistics

19. Classification of Units: ISIC • An industry is a group of establishments engaged in the same or similar kinds of activity • Principle of classification: An output-type criterion, based mainly on the principal class of goods produced or services rendered

20. Classification of Units: ISIC • ISIC is not designed to measure product data at any detailed level (For this purpose: CPC); • ISIC does not draw distinction according to: • Kind of ownership • Type of legal organization • ISIC does not differentiate between market and non-market activities

21. Classification of Units: ISIC • Please open: http://unstat.un.org/unsd/cr/registry/regcst.asp?C|=27 • Please have a look at sections

22. Classification of Units: ISIC • International Standard Industrial Classification of all Economic Activities (ISIC Ver.4) • Four digit levels • Sections – 21 – Alphabetical • Divisions – 99 – two-digits • Groups - ….. – three-digits • Classes - ….. – four-digits

23. Classification of Units: ISIC • Principles used in constructing the Classification: • Criteria in respect of divisions (two-digit) and groups (three-digit) • Similarity in the structure of the units • Certain relationships in an economy • For divisions: a) kind of activity carried out frequently under the same ownership; b) potential differences in scale and organization of activities and in capital requirements and finance • Pattern of categories at various levels of classification in national classifications

24. Classification of Units: ISIC • Principles used in constructing the Classification: • Criteria in respect of classes (four-digit) • Similar in respect of the kinds of activity • The classes are defined to satisfy the following two conditions: • Production of the category of goods and services of a given class accounts for the bulk of the output of the units classified to that class • Class contains the units that produce most of the category of goods and services that characterize it.

25. ISIC 3.1 coding system

26. Complex activities: Example One activity may consist of • One simple process, e.g. WEAVING (ISIC 131), OR • A whole range of sub-processes, e.g. the MANUFACTURING OF A CAR (ISIC 2910) is one activity, including sub-activities such as: • Manufacture of bodies (ISIC 2920), • Manufacture of parts and accessories (ISIC 2930), • Manufacture of batteries (ISIC 2720), • Manufacture of pumps for motor vehicles and engines (ISIC 2813) etc.

27. Treatment of multiple activities • Unit should be classified to ISIC class with the largest share of VA by using “top-down” method. • If VA cannot be determined: • An approximation by other criteria such as: • The proportion of gross output of the goods or services • Value of sales of those groups of products • Employment according to the proportion of people engaged in these different kinds of activity

28. Treatment of multiple activities (contd.) • If a unit is engaged in several types of independent activities, it should be classified, as per principal activity, to ISIC class with largest share of value added by using top down method • Identifying principal activity by top down method • List activities of unit attributing to each class, the value added/ output • Determine the section that has highest share • Within the section, determine the division that has highest share • Within the division, determine the group that has highest share • Within the group, determine the class that has highest share • This class identifies the principal activity

29. Treatment of multiple activities (contd.) Example: A reporting unit may carry out the following activities

30. Treatment of multiple activities- Example- Solution (contd.) Step 1. Identify the section Step.2 Identify the division (within section C) Step.3 Identify the group (within division 27) Step.3 Identify the class (within group 273)

31. Treatment of multiple activities- Example- Solution (Contd.) • The principal activity is therefore • 2732: Manufacture of other electronic and electric wires & cables • Although the class with the largest share of value added is class 4651: Wholesale of computers, PC peripheral equipment and software • If allocation had been made directly to the class with largest share of value added, we would have got the strange result of putting this enterprise outside manufacturing

32. Central Product Classification (CPC),Ver. 2: Purpose, scope and coverage. • To provide a framework for international comparison of statistics • To serve as guide for developing or revising classification schemes of products • To classify all goods and services

33. CPC: Structure • Five digit levels • Sections - 10 • Divisions - 69 • Groups - 293 • Classes - 1050 • Sub-classes - 2018

34. Classification of Products: CPC (Cont’d) • Designed to be integrated and corresponded to ISIC, but with CPC itself, one cannot tell which industries produce the products • To identify product type by originating activity, each product need to be recorded in both ISIC and CPC codes in a business survey (e.g. for IO tables)

35. Activities vs. Products: Example 1 A one-to-one correspondence between activities and products: • SUGAR (CPC 235) manufactured from sugar cane or sugar beet (ISIC 1072) • ELECTRICITY (CPC 171) produced from coal, oil, nuclear power stations, or hydroelectric plants (ISIC 3510)

36. Activities vs. Products: Example 2 A one-to-many correspondence between activities and products: • Different groups: MEAT (CPC 211) and HIDES (CPC 029) by slaughtering animals (ISIC 1010) • Different classes: SUGAR (CPC 2351) and MOLASSES (CPC 2354) by refining sugar canes (ISIC 1072)

37. Other Product Classifications • Customs – Harmonized Commodity Description and Coding System (HS) used by customs authorities to assess duties • Trade – Standard International Trade Classification (SITC) used by UNSTAT, Custodian UNSD

38. Classifications of Expenditure According to Purpose • Group various outlays of institutional units according to the purposes or objectives in spending the funds • Designed to serve the purposes: • An alternative breakdown of expenditure • Means to regroup key aggregates • Distinguish collective services & individual consumption goods provided by govt

39. Classifications of Expenditure According to Purpose : Types • Classification of the Functions of the Government (COFOG) • Classification of Individual Consumption by Purpose (COICOP) • Classification of the Purposes of Non-Profit Institutions Serving Households (COPNI) • Classification of the Outlays of Producers by Purpose (COPP)

40. Classifications of Expenditure According to Purpose: COFOG • Classifies by function the transactions of the sector government and its subsectors • Used for intertemporal and international comparisons independently of the institutional organization of govt: e.g. govt outlays – defense, public safety, education, creation of employment, payment for govt. debt • To identify consumption expenditures which benefit individual households in order to derive actual final consumption of households

41. COFOG (Cont’d) • Each transaction should be classified into the function that is closest to its purpose • The purpose of some govt units and their transactions are general and should be classified as general public services • When unit expenditures cannot be functionally classified as such, the entire unit expenditure may be classified according to an assessment or judgment of its principal functional activity

42. Individual Consumption: COICOP • To identify and classify “individual” consumption expenditures incurred by households according to the purposes, or objectives, that they are designed to achieve • Driven by a functional principle rather than a market grouping principle: e.g. insurance on cars is included under transport rather than in the insurance item • Useful in grouping product price data for the purpose of CPI

43. Purposes of NPI serving Households: COPNI • Classify outlays of private non-profit bodies rendering services to households according to the purpose they serve (covering same range of transactions as COFOG) • In practice, it is difficult to collect detailed information on the activities of NPISHs: Assigning entire institution to one of the major purposes of the COPNI

44. Outlays of Producers: COPP • Classify expenditures by producers, (e.g. repairs and maintenance, sales promotion, general administration, employees training, etc.) • Serve to identify whether outlays are linked to R&D, employee training & welfare, protection of the environment, etc • In principle, apply to all producers; in practice, only apply to outlays of market producers

45. Main Classification Systems: Schema

46. Summary & Conclusions • Classification is summarization and grouping • To ensure intertemporal and international comparability of data, we need to have international standards and systems of classification • SNA is the standard for economic statistics that considers comprehensive system of classifications

47. Thank You