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

1. 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

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

3. Services in the System of National Accounts

4. 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)

5. 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

7. 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

8. 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

9. Measurement of Output and Intermediate Consumption of Market Producers Sales and output Purchases and intermediate consumption + 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 + 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 VA = GO - IC Output Intermediate Consumption

10. 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

11. 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

12. International Recommendations for Distributive Trade Statistics 2008 (IRDTS 2008)

13. Background • Since 1950s, UN has publishedinternational 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)

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. Type of Operation and Top-Down Method in Retail Trade

21. 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 • Risks with respect to stability • Data may become available with unacceptable delay • Legal constraints with respect to access and confidentiality

22. 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 Data items for use in DTS Derived data items

23. 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

24. 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

25. Output estimates of particular service activities

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. Measuring insurance output Life Insurance Output = Total actual premiums earned (excl. prepayments of premiums) Premium supplements (equal investment income earned on the reserves of the policyholders) Total benefits due Change in life insurance technical reserves 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) + + - - +/-

33. Thank You