Report by Ulric Spencer of meeting of 20 June 2002
Eunice Lau, ONS outlined the ONS strategy on productivity measures (described in Economic Trends, April 2002). Resulting from a rising demand for productivity data, which have become the basis of a formal government performance target, they inform policy and are used for monitoring.
2001ís programme had resulted in: improved consistency between output and labour input; new measures of hourly output; improved dissemination; transfer of international productivity comparisons from DTI to ONS; and a review of non-production productivity resulting in publication of some experimental series.
In 2002, arising from user consultation, three priorities emerged: service sector productivity, investment and capital stock data, and skills and productivity.
With the service sector there were measurement difficulties relating to output and deflators. The ABI was a source that could yield useful data. On labour inputs, the components were data on skill distribution, on wage shares and relative wages, a quality adjusted labour input, and better integration of the LFS and National Accounts involving an international study.
On capital inputs, work on capital services, capital stock and business investment were the elements.
Matthew Shearing, ONS spoke on statistical issues in measuring quality change in public sector productivity. The National Accounts approach was concerned with outputs not outcomes. The public sector had no price mechanisms. How then to measure quality was the problem. He gave examples from education, police and health.
The theme of Neil Reeder, Treasury was also the measurement of productivity in the public services. Public services institutions lack market information on turnover and profits, and even where data were available, they were affected by subsidy. In general, as it was not possible to obtain value added or total factor productivity, different approaches were required.
A possible way of measuring the process chain was: budgetinput (economy, eg how well are we purchasing?), inputoutput (efficiency, eg. how well are we providing a service?) and outputoutcome (effectiveness, eg. are they the right services?). National income focuses on outputs public sector performance on outcomes.
Some measures which have been used (with examples) include: benchmarking (police), cost benefit analysis (London Underground), unit costs (health), output vs inputs (education) and scorecard (museums & galleries). Approaches have to be tailored to the issues.
Finally, Sue Otter, DTI described her work on evidence of demand for workforce development, a characteristic which could raise productivity. There was need to increase demand as well as improve supply. With such development high on the skills policy agenda, would a demand-led structure work?
Skill levels were a major factor in the weak UK competitiveness/productivity performance. Demand by employers for skilled people and by individuals for training was rising. But the contrast of £200bn spent on acquisitions and mergers with £23bn on training and £13bn on R&D in 2000 was revealing. Increasing demand for graduates (10% in 1986, 17% in 2001) compared with a decline in jobs needing no qualifications (38% in 1986, 27% in 2001) was further complicated by a regional mismatch between supply and demand. Employer demand was a greater problem than the supply of skills. However, development had to be business needs driven and the structure of demand was also a factor. One fifth of the ECís poor were in the UK, and many goods and services were traded on price not quality.