Public sector productivity programmes and performance indicators Case Finland

1. Public sector productivity programmes and performance indicatorsCase Finland EFFICIENCY OF SUB-CENTRAL PUBLIC SPENDING � WORKSHOP 19.05.2006 FRENCH BUDGET DIRECTORATE MINISTRY OF ECONOMY AND FINANCE Antti Moisio Principal economist Government Institute for Economic Research Helsinki, Finland

2. Antti Moisio, VATT Organisation of the presentation Finnish local government � a short introduction Pressures to improve productivity in the Finnish public sector Public sector productivity programmes in Finland An attempt to create indicators: research project on education services

3. Antti Moisio, VATT

4. Antti Moisio, VATT

5. Antti Moisio, VATT Centralized tasks Taxation and transfers to communities (but communal tax also) Employment policy Industrial policy Regional policy Higher education (but polythechics are municipal) Infrastructure, roads and railways (but streets, harbours and some roads are communal) Normative legal basis for health, education and social services (welfare state) State provision, but municipal production Financing: state, municipalities, employers, clients; varies between systems and tasks

6. Antti Moisio, VATT Finland has a complicated municipal structure 432 municipalities 231 joint municipal authorities The sizes of municipalities vary from 233 inhabitants to more than 560 000

7. Antti Moisio, VATT Finnish labour force by sector in 2004

8. Antti Moisio, VATT Finnish public sector performs well in international comparisons

9. Antti Moisio, VATT An example from education

10. Antti Moisio, VATT Why, then, should Finland worry about productivity in public sector? Ageing population, growth of service needs Diminishing labour force, increasing age dependency ratio Tax competition Diminishing public sector productivity The share of public services in the economy is large - productivity in public sector can have an impact on the private sector as well

11. Antti Moisio, VATT The age dependency ratio changes fast�

12. Antti Moisio, VATT � and in international comparison especially the old-age dependency ratio change is large �(over 65-year of age population as percent of working age population (20-64 years) in some EU member states)

13. Antti Moisio, VATT

14. Antti Moisio, VATT �and in the future public sector may hire even 70 percent of the new labour force�

15. Antti Moisio, VATT � and the productivity in public administration and services is in decline...(1995=100)

16. Antti Moisio, VATT

17. Antti Moisio, VATT Proposed measures to ensure fiscal stability in the future Budget discipline Central government, municipalities Improving productivity Productivity programmes Reforming municipal structure and municipal service duties By preparing the systems for the ageing Reform of pension systems Reducing central government debt

18. Antti Moisio, VATT Productivity Action Programme � the central government Each ministry has prepared a �productivity plan� to be included in their financial and operative plans The main aim is to cut staff and spending Especially the better use of IT is in focus IT can replace work in accounting, administration functions The aim is to fill only 50 percent of vacancies opened due to retirement � at the moment it seems that less than half of this target will be met First phase 2003-2004, second phase 2005-2006

19. Antti Moisio, VATT Productivity Action Programme � the Municipal Sector Grant system reform: new criterias for education services, reassessing the system of discretionary grants Need to utilise the scale economies better by: Supporting the mergers of municipalities Enhancing cooperation between municipalities, possibly by compulsory cooperation (minimum service areas or population served)? A new level of government?

20. Antti Moisio, VATT Public sector productivity indicators in Finland �an overview Government Institute for Economic Research (VATT) provides productivity indicators based on research results for several public services (some of these are described in the next slides) The National Research and Development Centre for Welfare and Health (STAKES) provides productivity indicators for special health care (hospitals) and long term care Statistics Finland provides more general productivity indicators (indices based on National Accounts data) In addition to the above, many municipalities have created their own indicators, but these are seldomly usable for general benchmarking purposes

21. Antti Moisio, VATT

22. Antti Moisio, VATT The aims of the research project on education service productivity: To define the productivity and efficiency differentials between oprganising units (municipalities, other organising bodies) To explain the efficiency differentials To provide information for benchmarking purposes and to spread information on the best practices in research reports, seminars, workshops, through internet pages etc.

23. Antti Moisio, VATT An example: a Data Envelopment Analysis model recently used to analyse Finnish comprehensive schools Outputs: The number of pupils in classes 1-6 The number of pupils in classes 7-8 The number of passed pupils on the 9. year ? average matriculation score The number of pupils who moved on to further education Inputs: Teaching expenditures euro/pupil Other expenditures (meals+other services to pupils) euro/pupil

24. Antti Moisio, VATT The development of inputs and outputs

25. Antti Moisio, VATT The range of DEA-efficiency scores in 1998�2004, - the average unit could have produced the output with 20 percent lover expenditures�

26. Antti Moisio, VATT � however, much of the efficiency differentials seem to be due to environmental factors Two thirds of the efficiency differentials could be explained using pupil characteristics, and other environmental factors After explanatory model, the average efficiency increases and the efficiency differentials are reduced dramatically But still, some �underachievers� and �overachievers� can be identified

27. Antti Moisio, VATT The econometric model used to explain the DEA-efficiencies Explanatory variables: Population (and population squared) Taxable incomes per capita Urbanisation rate Level of education for population aged 35-59 v. Unemployment rate Share of pupils given special assistance The share of pupils at classes 1-6 The share of non-Finnish speaking pupils Average school size in the municipality (Pupils/schools) The share of left wing parties of the municipal council seats

28. Antti Moisio, VATT Municipal size and efficiency(other factors controlled for)

29. Antti Moisio, VATT Increasing the school size has a positive impact on efficiency The effect applies for all school sizes (the estimated optimal size is larger than the present schools) The effect diminishes as the school size increases, though

30. Antti Moisio, VATT The environmental factors need to be controlled for

31. Antti Moisio, VATT Productivity change based on Malmquist index in comprehensive schooling in 1998�2003

32. Antti Moisio, VATT Summary Research can � and should - be used to produce indicators for efficiency and productivity of the public sector units Productivity and efficiency indicators based on research, where a number of environmental factors have been controlled for, are more useful and reliable that just simple �per capita� -indicators Much depends of the quality of the data though In Finland, the research projects have just started a year ago � the aim is to provide information for benchmarking (between municipalities) and for monitoring purposes (CG on municipalities) No plans in Finland, however, to use this information for sanctioning or for rewarding purposes

33. Antti Moisio, VATT Contact info: Antti Moisio Government Institute for Economic Research PL 1279, 00101 HELSINKI, FINLAND E-mail: antti.moisio@vatt.fi WWW: www.vatt.fi Tel: +358 9 703 2947 +358 50 328 6731