Latest release

Experimental Estimates of Industry Level KLEMS Multifactor Productivity methodology

Reference period
2016-17

Explanatory notes

1 This release contains a data download which provides experimental estimates of KLEMS multifactor productivity (MFP) for individual industries in the Australian economy. The term KLEMS represents the five input categories – Capital (K), Labour (L), Energy (E), Materials (M) and Services (S).The methodology for constructing the data is outlined in the Information Paper: Experimental Estimates of Industry Level KLEMS Multifactor Productivity (cat. no. 5260.0.55.003).

2 The data download includes measures of input, output and KLEMS MFP at the industry level from 1995-96. The 16 industries included in the data download comprise the 'market sector', and are as follows:

ANZSIC DivisionIndustry
AAgriculture, Forestry and Fishing
BMining
CManufacturing
DElectricity, Gas, Water and Waste Services
EConstruction
FWholesale Trade
GRetail Trade
HAccommodation and Food Services
ITransport, Postal and Warehousing
JInformation, Media and Telecommunications
KFinancial and Insurance Services
LRental, Hiring and Real Estate Services
MProfessional, Scientific and Technical Services
NAdministrative and Support Services
RArts and Recreation Services
SOther Services

3 Under a gross output based MFP approach, the contribution of each of the primary and intermediate inputs to output is weighted using the cost shares of each input. The cost shares for labour and capital are their respective primary incomes, divided by the current price value of gross output, while the cost shares for intermediate inputs are the expenditures on inputs, divided by the value of gross output.

4 The data in this release should be considered experimental and hence, interpreted with reference to the qualifying discussions, as presented in the Information Paper: Experimental Estimates of Industry Level KLEMS Multifactor Productivity (cat. no. 5260.0.55.003).

Reliability and future revisions

5 Productivity estimates are prepared from a wide range of statistical sources, some of which are available soon after the reference period, while others only with a delay of several years. Most of the data are derived from the regular program of statistical surveys undertaken by the ABS or as a by-product of government administrative processes. The frequency, detail and timeliness of these data sources are constrained by many factors, including the other statistical purposes which they must serve. Any increase in timeliness of data is usually at the expense of detail, reliability or additional resources. Therefore, productivity estimates in recent years are particularly sensitive to revisions as improved data become available.

6 Revisions arise from the progressive incorporation of more up to date data, re-weighting of chain volume series and, from time-to-time, the introduction of new economic concepts, data analysis and improved data sources and methods. Revisions are an inevitable consequence of the compilation process, reflecting both the complexity of economic measurement and the need to provide economic policy advisers and other users with initial estimates that are timely in order to maximise their use in analysis of current economic conditions.

Privacy

7 The ABS Privacy Policy outlines how the ABS will handle any personal information that you provide to the ABS.

Inquiries

8 For further information about these and related statistics, contact: productivity.statistics@abs.gov.au or the National Information and Referral Service on 1300 135 070.

Quality declaration

Institutional environmment

For information on the institutional environment of the Australian Bureau of Statistics (ABS), including the legislative obligations of the ABS, financing and governance arrangements, and mechanisms for scrutiny of ABS operations, please see ABS Institutional Environment.

Relevance

The ABS has been producing aggregate multifactor productivity (MFP) statistics since 1985. The ABS produces annual indexes of labour and MFP for the “market sector”, and since 2007, for each industry division within the market sector. The market sector consists of industries which predominantly produce goods and services which are sold at “market prices”, that is, prices which determine the quantity of goods produced and sold and which over the business cycle cover the cost of production.

Prior to the 2010-11 edition of the Australian System of National Accounts (ASNA) (cat. no. 5204.0), the market sector definition included ANZSIC Divisions A to K and R. In 2010-11 the definition was expanded to include Divisions L, M, N and S. The expanded definition improves relevance in two key respects: it reflects the growing contribution of services industries in the economy; and improves economic coverage. However, the improved economic coverage is only available from 1994-95, due to the availability of supply-use data. To facilitate analysing productivity performance from the perspective of a longer time series, productivity estimates are available for 12 selected industries (Divisions A to K and R) back to 1973-74. For more information on the compilation of MFP statistics, see Chapter 19 of Australian System of National Accounts: Concepts, Sources and Methods (cat. no. 5216.0).

Since 2016, the ABS has published experimental estimates of industry level KLEMS MFP (KLEMS represents the five inputs in the production process - Capital (K), Labour (L), Energy (E), Materials (M) and Services (S)) for the 16 market sector industries. By explicitly identifying the role of intermediate inputs in the production process, KLEMS facilitates a more rigorous analysis of the determinants of output growth at the industry level. For more information about KLEMS, see Information Paper: Experimental Estimates of Industry Level KLEMS Multifactor Productivity, 2015 (cat. no. 5260.0.55.003).

Timeliness

Annual aggregate MFP statistics are released as part of the ASNA, which generally occurs in the first week of November following the end of the most recent financial year. MFP statistics for each industry division within the market sector are released around four weeks after the release of the ASNA. Release of industry level experimental estimates of KLEMS MFP generally occurs seven to eight months following the end of the financial year. The gross-output based MFP measures (including KLEMS) are less timely than the value added based MFP measures, as gross output and intermediate input indexes are compiled using the supply and use tables, which are compiled and balanced up to the reference year (T-1). Estimates for current year (T) are not available.

Accuracy

ABS productivity statistics are heavily reliant on data from national accounts. Consequently, they share similar strengths and constraints as national accounts statistics. In the case of national accounts, it is internationally recognised that an assessment of accuracy is necessarily subjective and indirect due to the combined use of a very large number of internal and external data sources, and the transformations and aggregations used in the compilation process. For a more in-depth discussion of the accuracy of the national accounts including an analysis of revisions, please see the Information Paper: Quality Dimensions of the Australian National Accounts, 2007 (cat. no. 5216.0.55.002).

The approach taken for estimating MFP is based on standard growth accounting framework, which is widely adopted by leading statistical agencies and recommended by the OECD. The framework relies on two main assumptions: constant returns to scale; and that the marginal products of capital and labour are equal to their respective real market prices. While these assumptions may not hold in practice, the framework is useful in identifying the relative importance of proximate sources of growth. For more information about growth accounting assumptions and associated productivity interpretation, please see OECD Manual: Measuring Productivity and Chapter 19 of Australian System of National Accounts: Concepts, Sources and Methods, 2015 (cat. no. 5216.0).

Coherence

The coherence of data is an aspect of quality closely associated with accuracy. The productivity estimates (and in particular, on a KLEMS basis) benefit from the use of supply and use methodology to confront the data and balance the components of annual GDP, a major unifying feature within the ASNA. The supply and use methodology is a powerful tool to compare and contrast data from various sources and improve the coherence of the economic information system. It reconciles the supply of products within the economy within an accounting period with their use for intermediate inputs, final consumption, capital formation, and exports. The balancing process also facilitates additive growth accounts within and across industries, as well as decomposition of intermediate inputs into energy, materials and services.

While output, capital services and intermediate inputs are solely sourced from the ASNA, labour inputs are based on total hours worked in all jobs sourced from the Labour Force Survey (LFS). A recognised coherence aspect is the differences in coding of “industry” in LFS (reported by households) and business surveys (reported by business units) sourced by the ASNA, which can have impact on measures of labour productivity and MFP.

Interpretability

The interpretation of productivity indexes depends on how output and inputs are measured. For example, one can arrive at a different interpretation for MFP growth when gross output as opposed to value added is used as output measure. While MFP growth is often attributed to technical change, it is worth noting that not all technical change (e.g. technological changes embodied in new vintages of capital) translates into MFP growth; and MFP growth may be caused by a host of factors other than technical changes (e.g. economies of scale and scope, variation in capacity utilisation, changes in weather condition).

MFP estimates are probably most useful when analysed as average growth rates between growth-cycle peaks. Growth cycles are chosen with reference to peak deviations which are determined by comparing MFP estimates with their long-term trend. The peak deviation between these two series is the primary indicator of a growth-cycle peak. In this way, most of the effects of variations in capacity utilisation and much of the random error are removed. For more information about the productivity growth cycle, please see the Feature Article: Experimental Estimates of Industry Value Added Growth Cycles in 2015-16 issue of Estimates of Industry Multifactor Productivity (cat. no. 5260.0.55.002).

Accessibility

The ABS produces annual indexes of labour, capital and gross value added-based MFP for the market sector and its constituent industry divisions and KLEMS MFP for market sector industries. Access to all published productivity data is available for free on the ABS website. For more information on published productivity statistics, please see "What measures are available?" in Frequently Asked Questions.

For more detailed information, please email productivity.statistics@abs.gov.au. The ABS Privacy Policy outlines how the ABS will handle any personal information that you provide to the ABS.

Abbreviations

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ABSAustralian Bureau of Statistics
ANZSICAustralian and New Zealand Standard Industrial Classification
ASNAAustralian System of National Accounts
GDPGross Domestic Product
GVAGross Value Added
KLEMSCapital (K), Labour (L), Energy (E), Materials (M) and Services (S)
LFSLabour Force Survey
LPLabour Productivity
MFPMultifactor Productivity
OECDOrganisation for Economic Co-operation and Development
QALIQuality Adjusted Labour Index