OECD Working Party on National Accounts Paris France

OECD – Working Party on National Accounts Paris, France, 14 -16 October 2008 Session 10 Non-market Services Comparison of input and output-based volume measures of education and health Collesi, Versace, Zannoni Istat, Directorate of National Accounts Daniela Collesi ISTAT, Via Agostino Depretis 74/B, 00184 Rome, ITALY daniela. collesi@istat. it

INTRO OUTPUT METHODS INPUT METHODS This presentation aims at proposing: The comparison between the use of output and input methods for the two most relevant individual non market services: education ad health The comparison of results INPUT AND OUTPUT METHODS IMPACT ON GDP The comparison of the impact on the key variables of the National Accounts framework Daniela Collesi - Comparison of input and output-based volume measures of education and health

Deflation methods INTRO A short description of the methods currently in use OUTPUT METHODS n INPUT methods: the value of the “output at constant prices is based on the deflation of each cost component that, in the case of non-market services, contributes in forming its value” INPUT METHODS INPUT AND OUTPUT METHODS n OUTPUT methods: the value of the output is based on the “identification of a volume component, by means of indices of the quantities produced of the service examined” n Price indices IMPACT ON GDP Daniela Collesi - Comparison of input and output-based volume measures of education and health

Output methods – Education INTRO OUTPUT METHODS INPUT METHODS The public production of educational services is divided into the followings activity areas: n n School system Vocational training University education Subsidiary services to education INPUT AND OUTPUT METHODS IMPACT ON GDP Daniela Collesi - Comparison of input and output-based volume measures of education and health

Education: School system - 1/2 INTRO OUTPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP Public school system is supplied in state schools managed by Ministry of Education, University and Research, and in other public schools managed by local authorities: Municipalities, Provinces and Regions. Scholastic education is supplied mainly in state schools, and is divided into four levels: n n pre-primary education; lower secondary; upper secondary education. Daniela Collesi - Comparison of input and output-based volume measures of education and health

Education: School system - 2/2 INTRO Data Sources OUTPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP Quantities Number of pupils in state schools and non-state schools broken down into the four levels of education, and in upper secondary education by type of institute: - classical lyceum - scientific lyceum - teacher-training institutes and schools - vocational institutes - technical institutes - art institutes and lyceums. Detailed breakdown of the basic data is essential in order to ensure homogeneity among the elementary indices and the costs assigned to them. Costs The costs are based on the Cofog classification of Government expenditure. The expenditure on Division 9, Education, provides the cost elements, by the 2° level analysis, Groups. For the part concerning services provided to individuals (groups from 9. 1 to 9. 6), the COFOG classification is fully in line with the ISCED 97. The quality adjustments are based on the number of pupils per class Daniela Collesi - Comparison of input and output-based volume measures of education and health

Education – University - 1/2 INTRO OUTPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP The production of services supplied by universities is split in two CPA classes (and in COFOG groups too): n Research and Development, for the part related to research n Education, for the part concerning didactic services. The first is deflated by the input method, while the second one is deflated with the output method. The quantity indicator used is the number of enrolled students per faculty and/or group of homogenous faculties (18 faculties) The quantities are weighted by the cost per student by faculty, defined by using a methodology based on the standard cost per student Daniela Collesi - Comparison of input and output-based volume measures of education and health

Education – University – 2/2 INTRO OUTPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP The quality adjustments are outcome-based. The indicators used are: n. The ratio between the enrolled “regular students” in the course and the total number of enrolled students n. The reduction of the distance between the actual number of years for graduation and theoretical length The two indicators have the same direction, they both tend to 1. The simplest aggregation of the two indicators has been preferred, supposing that both indicators have the same weight. Daniela Collesi - Comparison of input and output-based volume measures of education and health

Health INTRO The volume index is based on Diagnosis Related Groups (DRG). OUTPUT METHODS The quantities are represented by the patients discharged from the public hospitals classified by DRG INPUT METHODS INPUT AND OUTPUT METHODS The costs, that constitute the system of weight, are based on the sets of fees that are used by the National Health Service to refund the services supplied IMPACT ON GDP The quality correction is based on the availability of large diagnostic apparatus with high-tech content at a regional level. Daniela Collesi - Comparison of input and output-based volume measures of education and health

Input Methods INTRO OUTPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP The input methods are currently used for the evaluation of collective services at constant prices; they also serve for the residual part of the government individual services. The calculation is based on the deflation of compensation of employees according to the AW method, as suggested by the Eurostat Task Force on NACE L services. The deflation of the other components of output cost, that is to say other taxes on production, intermediate consumptions and consumptions of fixed capital, does not present any relevant difficulties. Daniela Collesi - Comparison of input and output-based volume measures of education and health

INPUT methods – The Average Wage method INTRO OUTPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP For the deflation of the compensations of employees (D 1) of General Government sector (which make up more than 60% of the overall production value at current price) the Average Wages Method was used, based on Annual Count Survey (CA) data, produced yearly by the State accounting department (RGS). The AW method allows to evaluate in a complete manner this cost component that represents the most important part of the General Government output. Percentage incidence of the items making up the Total NMK output of the General Government. Elaborations on data at current prices, 2000 - 2007 Daniela Collesi - Comparison of input and output-based volume measures of education and health

Comparison for Education INTRO Education Output at constant prices OUTPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP The compensation of employees represents more than 83 per cent of the output at current prices. This explains the relevant effect that the changes in this aggregate, due to the contract renewals, have on the output price index (the implicit deflator). Daniela Collesi - Comparison of input and output-based volume measures of education and health

Comparison for Education INTRO OUTPUT METHODS In order to apply the input method by product, it has been done an attempt to breakdown the compensation of employees to take into account the level of education. % distribution of workforce by occupation profile and product (level of education) INPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP As almost 23% of employees is not allocated by level of education, only three products can be analysed: Scholastic and other education, University and Subsidiary services to education Daniela Collesi - Comparison of input and output-based volume measures of education and health

Comparison for Education INTRO OUTPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP The result is very close to that obtained without the breakdown. This could actually mean that the stratification, already enclosed in the method, is detailed enough to allow to catch the differences since the beginning; on the other hand it could also mean that there is no relevant difference in the ratio between prices (compensation of employees) and quantities (number of teachers, etc. ) among the different products (the level of Education). Daniela Collesi - Comparison of input and output-based volume measures of education and health

Comparison for Health INTRO Health Final consumption expenditure at constant prices OUTPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP When analysing the effect of the different methods on the aggregate Final consumption expenditure the relevant role of Social transfers in kind should be kept in mind. This item is often subject to budget constraints, as it happens to intermediate consumption, also whether not necessarily in conjunction with them. Also political actions/measures that aims at introducing efficiency in Health may have effect on the expenditure for Social transfers in kind. Daniela Collesi - Comparison of input and output-based volume measures of education and health

Impact of input and output methods on GDP INTRO Final consumption expenditure OUTPUT METHODS INPUT METHODS Value added INPUT AND OUTPUT METHODS IMPACT ON GDP Daniela Collesi - Comparison of input and output-based volume measures of education and health

Conclusions INTRO OUTPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP The comparison between the two methods has highlighted several problems both on theoretical and on the practical grounds. The input method implies to determine a price for each product, that is for each level of education or for each Diagnosis Related Group in the case of Hospital services. An appropriate application of an input method would imply to work on a detailed database that, for the time being, does not exist. Furthermore the substitution of output methods with input ones would also prevent from the calculation of whatever kind of productivity measure of government sector. Daniela Collesi - Comparison of input and output-based volume measures of education and health

INTRO OUTPUT METHODS Thank you! INPUT METHODS INPUT AND OUTPUT METHODS IMPACT ON GDP Daniela Collesi ISTAT, Via Agostino Depretis 74/B, 00184 Rome, ITALY daniela. collesi@istat. it Daniela Collesi - Comparison of input and output-based volume measures of education and health