Derek Burnell and Qinghuan Luo (Economic Statistics Research Section)¹
The Australian Bureau of Statistics (ABS) is undertaking a program of research and analysis to enhance measures of non-market economic activity in the Australian National Accounts. Non-market economic activity occurs when output is delivered to final consumers free of charge, or at ‘token’ prices set well below the cost of production. The lack of prices presents significant valuation and aggregation difficulties, which are articulated in a recent ABS research paper.²
This paper outlines the compilation of experimental rental prices and indexes of capital services for the education and health care industries, which will be used in constructing the experimental MFP measures referred to earlier. The ABS welcomes comments and suggestions on this approach. To provide feedback, please email email@example.com.
Prime examples of non-market activity are services delivered by public hospitals and schools. The ABS recently published enhanced experimental measures of output for hospitals, schools and public universities, which considered methods of using costs of production data as a proxy for prices.³ ⁴ ⁵ The ABS intends to build on these experimental output measures by compiling experimental estimates of multifactor productivity (MFP) growth for the same areas of the economy, due for publication in 2021. This work will begin to address the long-standing gap in ABS productivity statistics for non-market industries.
Productivity growth is defined as growth in the volume of outputs relative to growth in the volume of inputs used to produce output. Partial measures of productivity take into consideration a single input like labour or capital. Labour productivity is frequently used as an indicator of productivity growth, which is usually measured as output per hour worked. When multiple inputs such as labour and capital are taken into consideration, estimates are referred to as multifactor productivity (MFP), which are measured as output per unit of a combined bundle of inputs.
The ABS publishes annual estimates of MFP growth for the market sector of the Australian economy, corresponding to industry Divisions A to N, plus Divisions R and S.⁶ The valuation and aggregation difficulties associated with measuring non-market activity are also present when measuring productivity growth. As a result, the ABS currently excludes three industry divisions in which there is a significant amount of non-market activity from the official multifactor productivity dataset.⁷ These industries are Division O – Public administration and safety; Division P – Education and training; and Division Q – Health care and social assistance.⁸ Enhancing the measurement of this portion of the economy is important, given the current size of the non-market sector (an estimated 18.6% of industry gross value added in 2019-20) which has been steadily increasing over time.⁹
To calculate MFP growth on a gross output basis, three inputs need to be accounted for – labour, capital, and intermediate goods and services ‘used up’ in the production process such as energy, materials and services.¹⁰ Figure 1 provides an overview of the types of productivity measures currently published by the ABS. To measure capital’s input to production, two variables are required – volume measures of productive capital stock (PKS), and the ‘price’ of a unit of capital, known as the rental price. While the ABS compiles PKS estimates for non-market industries, it does not currently compile rental prices for those industries.
|Productivity type||Gross Output based measures||GVA based measures||Labour inputs||Capital services inputs||Intermediate inputs|
|Value added MFP||-||Y||Y||Y||-|
|Gross Ouput MFP||Y||-||Y||Y||Y|
 The authors would like to thank Jason Annabel and Katherine Keenan for their helpful comments on an earlier draft of this paper.
 In productivity statistics, a stylised definition of ‘market’ and ‘non-market’ sectors is used because estimates are compiled at the industry division level. It is acknowledged that market sector industries contain non-market activity, and that non-market industries contain market activity (e.g. services provided by private schools and private hospitals).
 The ABS publishes labour productivity measures for the non-market industries, just not MFP.
 For a more detailed discussion of gross output (KLEMS) based MFP, see the 2015 KLEMS Information paper.