Terminology for the Index of Service Production

1. Terminology for the Index of Service Production STESEG Task Force on Services Bernard Lefrançois (presenter) June 28, 2004

2. Background • Compilation Manual for ISP • Common terminology required • Previous meetings • STESEG 2003 • Task Force meeting February 2004 • E-mail discussions

3. Sources • Generally accepted definitions • Sources • SNA 1993/ESA 1995 • Eurostat Concepts and Definitions Database (CODED) • OECD Glossary of Statistical Terms

4. Services – sources • SNA 1993: 6.8, 6.9 • Eurostat: based on SNA 1993 • OECD: based on SNA 1993 • Recommendation: OECD version.

5. Services – recommendation Services are outputs produced to order and which cannot be traded separately from their production. Services are not separate entities over which ownership rights can be established. They cannot be traded separately from their production. Services are heterogeneous outputs produced to order and typically consist of changes in the conditions of the consuming units realized by the activities of producers at the demand of the consumers. By the time their production is completed they must have been provided to the consumers.

6. Service sector – sources • There are important variations • NACE 1.1 • Sections G to K and M to O • Exclusions: • L: Public administration and defence; compulsory social security • P: Activities of households • Q: Extra-territorial organizations and bodies • ISIC 3.1 • Sections G to Q

7. Service sector – recommendation • ISIC 3.1 – Sections G to Q • G Wholesale and retail trade; repair of mot. veh., motorcycles and personal and household goods • H Hotels and restaurants • I Transport, storage and communications • J Financial intermediation • K Real estate, renting and business activities • L Public administration and defence; compulsory social security • M Education • N Health and social work • O Other community, social and personal services • P Activities of households • Q Extra-territorial organizations and bodies

8. Service sector – notes • ISP to measure domestic activity • Establishments in Section Q are not domestic by convention (SNA 1993) • Section Q will be excluded • ISP Manual will use ISIC Rev. 4 • Still require discussion and near final version • e.g. Should Service Sector includes some classes of Section E: Water supply; sewerage, waste management and remediation activities? • ISIC Rev. 4 Draft structure of May 12, 2004 • http://unstats.un.org/unsd/cr/registry/isic-4.asp

9. Service sector – ISIC Rev. 4 • ISIC Rev. 4 Draft sections • G: Trade • H: Transportation and storage • J: Accommodation and food service activities • K: Information and communication • L: Financial and insurance activities • M: Real estate, rental and leasing activities • N: Professional, scientific and technical activities • O: Administrative and support service activities • P: Education • Q: Health and social work • R: Arts, entertainment and recreation • S: Other service activities • T: Public administration and defence; compulsory social security • U: Activities of households as employers; undifferentiated goods- and services- producing activities of households for own use

10. Service sector – notes (cont’d) • Sector defined in terms of industry classes • Includes all activities of each class, whether they are goods- or service-producing

11. Market/Non-market activities • Definitions as per SNA 1993/ESA 1995 • Main difference is that ESA 1995 definitions are more operational • Economically significant prices • Prices are said to be economically significant when they have a significant influence on the amounts the producers are willing to supply and on the amounts the purchasers wish to buy

12. Market/Non-market producers • SNA 1993 (4.58, 6.52) • Market producers are producers that sell most or all of their output at prices that are economically significant • ESA 1995 (3.19, 3.24, 3.27-3.40) • Market producers are producers that sell their output at economically significant prices. Non-market producers are producers that provide most of their output to others free or at prices that are not economically significant. (…) by convention all the output of unincorporated enterprises owned by households sold to other institutional units is (…) to be regarded as market output. For other institutional units, output is only sold at economically significant prices when more than 50% of the production costs is covered by sales.

13. Market/Non-market ISP • ISP to include market and non-market activities • Bulk of non-market activities in Sections L, M, N (ISIC 3.1) • ISP to be presented with • Breakdown by ISIC sections • Market and non-market sub-indexes if feasible

14. Index of service production (ISP) – recommendation An Index of Service Production (ISP) measures changes over time in the gross value added in real terms of the Service sector. More precisely, it is defined as the ratio of the volume of output produced by the service industries in a given time period to that produced in a specified base period. (…)

15. Output (Gross output) –SNA 1993 6.38 Output consists of those goods or services that are produced within an establishment that become available for use outside that establishment, plus any goods and services produced for own final use.

16. Output – context Such output may be: • sold; • entered into the producer's inventories prior to sale, barter, etc. • supplied to other establishments belonging to the same enterprise for use as intermediate inputs • retained by their owners for own final consumption or own gross fixed capital formation • supplied free, or sold at prices that are not economically significant to other institutional units • provided to their employees as compensation in kind or used for other payments in kind • bartered in exchange for other goods, services or assets

17. Receipts/Sales/Turnover... • No universal definition of “turnover” • e.g. not used in Canada and United States • Receipts/Sales/Turnover may be used interchangeably by the same organisation • Some valuation boundaries: • Own products vs consignments • Taxes • Subsidies • Rebates, discounts, returns • Work-in-progress payments • Task Force has set aside this issue for now

18. Questions to STESEG –chap. B of Manual • Any strong preference on statistical units? • If not, the following combination will be recommended either • establishment and/or enterprise or • Kind of Activity Unit (KAU) and/or enterprise • Would comparability across member states be reduced? • Should ISIC be the primary industrial classification used? • If yes, should it be Rev. 3.1 or Rev. 4? • If Rev. 4, should ISP Manual be prepared after 2007?

19. Questions to STESEG –chap. C of Manual • Coverage of ISP • Market ISP: monthly • Non-market ISP: monthly, quarterly or no need? • How to distinguish market and non-market services? • Should there be a guideline or be left to be determined by member states? • In many cases, there is more than one definition for concepts • Should only one definition be kept? If so: • Should all the definitions be taken from a single source (e.g. EU/SNA/UN)? OR • Should a definition be created from a mixture of several sources? • Differences between receipts/sales/turnover • Theoretical clarification needed? • If yes, how?