INPUTS
Labour inputs
The productivity measures use hours worked by industry based on data from the household Labour Force Survey (LFS). The total hours worked estimates by industry are the product of industry employment and average hours worked per person by industry.
Using the LFS for industry hours worked has some strong advantages. The LFS records hours worked and employment information for employees and the self-employed while business surveys tend only to have employment data for employees and tend not to record hours worked information. Since the self-employed constitute around 15% of the Australian work force and have different patterns of work than employees their inclusion is a significant benefit of LFS data over business surveys. The LFS also has a consistent uninterrupted time series and if the ABS were to use business surveys a hybrid of two different data sources would be needed.
There has been some research using alternative sources of employment data, such as the Economic Activity Survey (EAS) / Tax data and the Survey of Employment and Earnings (SEE) to compare with the LFS. The results showed that while there were no significant differences in the industry distribution of employment between the LFS and the alternative sources, the patterns of growth were different in some industries. Overall, the data quality of the alternative sources is not yet considered sufficiently high and therefore in these productivity estimates the LFS data are used.
One area for further research is to adjust the industry hours worked estimates for changes in labour composition. When compiling productivity estimates, increases in aggregate labour composition, such as increased experience and higher qualifications, will not be reflected as increases in labour inputs, but will be reflected in MFP. An aggregate market sector adjustment has been developed but no industry level adjustments are possible at this stage.
Further details on labour inputs are discussed in Appendix 1.
Capital inputs
The other input used in measuring value added based MFP is capital services. Capital services are a flow measure based on the productive capacity of capital. The capital services produced by an asset over its life are directly proportional to the productive capital value of the asset. The productive capital stock estimates are derived on the basis of an asset's pattern of decline in efficiency due to age. There are many possibilities for defining the 'age-efficiency profile', but a lack of data makes it difficult to determine the precise profile of each asset and hence, general assumptions are used. The ABS uses hyperbolic functions to describe the age-efficiency profiles. A hyperbolic function means that the efficiency of an asset declines by a small amount at first and the rate of decline increases as the asset ages. Age-efficiency profiles are distinct from, but related to, rates of financial depreciation of assets, which are linked to age-price profiles. That is, the productive efficiency of an asset will not necessarily decline at the same rate as its economic value.
The productive capital stock is estimated by applying a perpetual inventory method (PIM) to volume estimates of investment (gross fixed capital formation) at a detailed level in conjunction with age-efficiency profiles. Briefly, for each asset type the PIM adds the current year's investment to previous years' investments, which are multiplied by suitable scalars footnote 1 to give a productive capital stock for each asset. An index of capital services is then defined by aggregating the changes in the productive capital stock for each asset using their respective rental price as weights. Rental prices are also called the user cost of capital and are defined as the price per unit of capital and are considered to be the cost of financing an asset (OECD 2001a). For further details on capital inputs see Appendix 2.
There are a number of assumptions required to estimate capital services. These assumptions relate to the rate of return, the asset price deflator, and the mean asset life. For the estimates presented in the industry analyses in Chapters 4 to 15, there is no change to previous ABS methodology for estimating industry level capital services. Appendix 2 highlights that different methodological choices have little impact on capital services estimates at an industry level, and as such do not affect interpretation of the industry MFP estimates. For further details on the sensitivity analysis of the methodological options, see Appendix 2.
The ABS classifies the use of capital as an intermediate input when the capital is leased or rented from a firm primarily operating in another industry. If the proportion of the capital that is leased is changing it can affect value added productivity growth estimates. A reduction in the percentage of capital held within an industry over time, such as when a firm leases rather than purchases capital, would understate growth in the capital service index, which would have the effect of overstating value added MFP growth. The treatment of capital as an intermediate input only applies to operating leases, as capital held under a long term finance lease is treated as capital and included in productive capital stock estimates (ABS 2000).
Intermediate inputs
Gross output based MFP requires estimates of intermediate inputs. Intermediate inputs are sourced from the supply-use tables and are formed into a chain-volume Laspeyres index using appropriate price deflators. Intermediate inputs consist of the value of goods and services consumed as inputs into the production process. The goods and services may be either transformed, or completely used up in the process of producing outputs.
In addition to goods and services used directly in the production process, intermediate inputs include the value of all goods and services used as inputs into ancillary activities. Ancillary activities include purchasing, sales, marketing, accounting, data processing, transportation, storage, and security. The output of an ancillary activity is not intended for use outside of the enterprise.
1 The scalars take into account age-efficiency profiles and retirement distribution patterns. The scalar in the year the investment is made is equal to one. To represent the decline in the capital service that occurs over time the scalar in subsequent years is less than one. The scalars are different for each asset and change each year of the asset's life. back
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