Exhaustiveness of national accounts Non-observed economy and Informal sector

1. Agenda item 6d Exhaustiveness of national accountsNon-observed economy and Informal sector Workshop on Implementation of the 2008 SNA Kiev, 29 November - 2 December 2011 Presentation by UNECE

2. Objective and Definition • All activities within the SNA production boundary should be included • Non-observed economy refers to all productive activities that may not be captured in the regular statistical enquiries, that is, activities that are notdirectlyobserved. • The aim is to make national accounts exhaustive (quality aspects). • Statistics are impartial - from NA perspective not important whether what is produced are “goods” or “bads”, whether produced legally/illegally, by registered/unregistered enterprises etc.

3. Exhaustive Measurement issues • Lack of coverage causes problems for users both in terms of levels and trends • Levels • GDP and other data downward biased – inaccurate impression of economy • Great significance in situations - monetary contributions made/received by a country depend on its GDP or when poverty is measured by GDP per head etc. • Trends • Biases in trend estimates can be expected if the economic activities missing from GDP grow at different rates from those included • For National Accountants, lack of coverage causes imbalances in the internal consistency of the accounts

4. Exhaustiveness in the 2008 SNA • It is not an issue only for developing countries, although it affects measurement of production in these countries more. • Chapter 25 in the 2008 SNA – Informal aspects of the economy • Ensure all activities (incl. hidden and underground) are encompassed in measures of total, • Define and measure Informal activities.

5. Non-observed economy and Informal Sector Not observed, not informal Observed, informal Not observed, informal

6. Conceptual framework • The 2008 SNA • Measuring the Non-Observed Economy. Handbook (2002) – jointly prepared by OECD, IMF, ILO and CISSTAT • ILO 15th ICLS, Delhi Group on Informal Sector • Eurostat Pilot Projects on Exhaustiveness in 1998 and 2002 – Guidelines on Tabular Frameworks • UNECE surveys on country practices in measuring the NOE (1993, 2002, 2005/06)

7. Non-Observed economy Measuring the Non-Observed Economy. Handbook (2002) http://www.unece.org/stats/documents/2007/04/noe/zip.30.r.pdf - in Russian 5 problem areas: • Underground production • Illegal production • Informal sector production • Household production for own final use • Deficiencies in data collection

8. Informal Sector: ICLS & SNA differences 1)Typology of production units • part of SNA households and household enterprises as market producers belongs to ICLS formal sector (meaning of sector different from SNA) 2) Segmenting the economy • Informal own account enterprises and enterprises of informal employers • Criterion of non-registration in many countries does not coincide with lack of legal entity and complete set of accounts 3) Criterion of market producers – ‘some or all’ vs. ‘most or all’ 4) Special cases: ICLS excludes owner-occupied dwellings, services for own final use by paid domestic staff, treats separately agricultural and non-agricultural activities.

9. Eurostat tabular approach • Developed for the projects on Exhaustiveness of National Accounts with EU Candidate Countries • First project (1998 – 2000): Tabular approach T1 –T8; • Second Project (2002 – 2003): refined Tabular approach to exhaustiveness N1 – N7

10. Eurostat tabular approach • Defines standard set of non-exhaustiveness types (N1 to N7) and presents them in a tabular framework; • Provides a comprehensive and systematic assessment to ensure exhaustiveness of NA; • Facilitates cross-country comparisons of adjustments and adjustment methods and provides for similar level of coverage of NA. • However, the distinction between the N-types is important but it is not the main goal; • Main goal: produce accurate NA and GDP estimates.

11. Total economy (all activities of all producers) Covered by enterprise surveys Yes No Not -surveyed Surveyed Administrative registration? Responding? Yes No No Yes Not registered Registered Non-response incorrectly handled N7a Deliberately not registered N1 Not Required to Register N3 Legal person N4 Enterpre-neur N5 Not all data are available N7b Misreporting N6 Illegal producer N2 Slide 11

12. Measurement of Non-Observed economy Measurement of NOEinvolves action on two fronts: • Improvements in direct measurement by the data collection programme, resulting in fewer non-observed activities and hence fewer non-measured activities; and • Improvements in indirect measurement during compilation of the national accounts, resulting in fewer non-measured activities.

13. Exhaustiveness – NA methods Indirect methods of covering NOE in the GDP estimate: • Supply based approaches, including LIM; • Demand based approaches; • Income based approaches; • Commodity flow approaches. • Labour Input Method (LIM) is the most important procedure that has been used since 1950s to measure contribution of unorganised sector to GDP.

14. Supply and use framework • commodity flow method at the level of the whole economy • breakdown of total output or sales by product for goods and services • data on exports and imports of goods and services. • estimates of the ratios of intermediate consumption to output for various industries. • total intermediate consumption by product, • final household consumption expenditure, gross fixed capital formation, and changes in inventories by product • balancing – removing inconsistencies for the benchmark year and subsequent years

15. UNECE Surveys on country practices UNECE surveys • 1991: 9 countries • 2001/02: 29 countries • 2005/06: 43 countries • Inventory of current methods and practices in estimating NOE • Implications and effects on National Accounts

16. UNECE Surveys on country practices EU member countries - from ~ 1% to ~ 18.9% (from 6.6 to 18.9 among new EU members) EECCA countries - from 10.7 % to 31.6% SEE countries - from 8.8 % to 30.6 % Turkey (1.7%); Mongolia (between 13.0% and 30.0%)

17. Problems in the countries of the region Overall infrastructure • Large number of unregistered enterprises, irregular and individual activities, unregistered employed persons • High turnover of enterprises, changes in types of economic activities Statistical infrastructure • Links between all administrative registers and the statistical business register • Use of exhaustive and updated business register as a base for all establishments surveys • Difficulties related to sample surveys • Difficult to check the reliability of reported data • Measuring illegal activities • Etc.

18. Adjustments to NOE Activities Source: UNECE, 2008

19. Improvement of basic data • Statistical data requirements • make known the requirements and data problems of GDP compilation to the branch statisticians • inform main users about the NOE problem areas • Institutional framework • legislation, access to administrative data, relation between confidentiality and non-response or misreporting • Conceptual framework of data collection • units, classifications • Data collection mechanisms • administrative sources, statistical business register, surveys

20. Implementation strategy Steps: • Formulate aims, consult internal and external users • Select an analytical framework • Assess NA and basic data collection programme • Identify and prioritise NOE improvements Special features in transition countries: • priorities: underground, informal • analytical framework linked to priorities • introducing sample surveys • cooperation with other government agencies

21. Issues for discussion • Is Eurostat tabular framework best fitted for NA for the region ? • Why large portion of units are still in non-observed, while registration is required ? • Use of better coordination with all administrative registers • Country experiences for measuring the NOE • Illegal, underground activities; • Own-account non-agricultural goods production solely for own final use • Statistical underground • Informal sector enterprises