Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community

• 10.28. | | | | --- | --- | | Definition: | Value-added at constant prices is defined as the difference between output at constant prices and intermediate consumption at constant prices. Image omitted; see official source where P and Q are prices and quantities for output and p and q are prices and quantities for intermediate consumption. The theoretically correct method to calculate value-added at constant prices is by double deflation, i.e. deflating separately the two flows of the production account (output and intermediate consumption) and calculating the balance of these two revalued flows. |

• 10.29. In some cases, where the statistical data remain incomplete or not sufficiently reliable, it may be necessary to use a single indicator. If there are good data on value-added at current prices, one alternative to double deflation is to deflate current value-added directly by a price index for output. This implies the assumption that prices for intermediate consumption change at the same rate as for output. Another possible procedure is to extrapolate value-added in the base year by a volume index for output. This volume index can be calculated either directly from quantity data or by deflating the current value of output by an appropriate price index. This method in fact assumes that the volume changes are the same for output and for intermediate consumption.

For certain market and non-market service industries, such as finance, business services, education or defence, it may not be possible to obtain satisfactory estimates of price or volume changes for output. In these cases the movements of value-added at constant prices can be estimated by means of changes in compensation of employees at constant wage rates and consumption of fixed capital at constant prices. Compilers of data may be forced to adopt such expedients, even when there is no good reason to assume that labour productivity remains unchanged in the short or long term.

• 10.30. By their very nature, therefore, the indices of volume and price for value-added are different from the corresponding indices for the flows of goods and services.

The same applies to price and volume indices of aggregate balancing items such as gross domestic product. The latter is equivalent to the sum of all the values added minus Fisim, i.e. to an addition of balancing items, plus taxes less subsidies on products and from another point of view can be seen to represent the balancing item between total final uses and imports.

PROBLEMS IN THE APPLICATION OF THE PRINCIPLES

• 10.31. To apply the principles of price and volume to the different flows in the system it is necessary to specify the solutions to be adopted for a number of problems which arise in this connection.

GENERAL APPLICATION

• 10.32. The need to determine which of the various factors described in the previous section explain differences in price arises whenever one studies time series of value data and has to separate price changes and volume changes. It follows that, even at a fine level of detail, series of quantity data may give only crude measures of volume changes, as they do not properly reflect changes that may have occurred in the mix of different qualities. This means that, for example, a constant number of physical units, recorded for a certain flow, understates the volume change if the composition has changed in favour of units with higher quality. This shift implies a change in average quality and must be registered as an increase in the volume index. In general, the best method of estimating volume changes for flows of goods and services is deflating value data with price indices. Since all changes in average quality are correctly reflected in the value series, dividing by a representative price index, which is adjusted for quality changes, gives a correct volume index.

• 10.33. Deflation with price indices may not always be best in practice and other methods have to be adopted. Value series may, for example, have been established by multiplying price and quantity data and constant price data can then be obtained by using prices from the base year. Alternatively, some value series may be of an inferior quality or difficulties may exist in obtaining reliable price indices. Estimates can then be made on the basis of quantity indicators. In these cases care must be taken that the quantities refer to products that are as homogeneous as possible. If none of the methods described above are applicable, constant price data on outputs may have to be based on estimates of inputs at constant prices.

• 10.34. For non-market services the possibility of deflating values by using price indices does not exist and other solutions have to be applied. These are described in paragraphs 10.41 to 10.46.

APPLICATION TO SPECIFIC FLOWS

Flows of goods and market services

• 10.35. Of all the flows in the economy, the changes in the value of the flows of goods and market services are the most readily broken down into price and volume changes. In this context a clear distinction should be made between:

• (a) flows representing transactions actually carried out on the market at a certain price;

• (b) flows representing output for own final use (e.g. own-account production of agricultural products and services from owner-occupied dwellings);

• (c) flows whose value is defined as a balance between transactions in goods and services (e.g. trade margins);

• (d) flows whose value is defined as a difference between distributive and/or financial transactions (e.g. financial intermediation services indirectly measured and insurance services).

• 10.36. The flows in category (a) are by far the most numerous and commonplace. Changes in the values of these flows can, by their very nature, be split into volume and price changes. The general method of deflating the current value of these flows by price indices is applicable in all cases where goods and services can be expressed in units, the majority of which are homogeneous from one year to the next.

• 10.37. The flows in category (b), which are notional transactions, are typified by the absence of an actual price for the transaction. This is the case for such goods as agricultural products for own final use and goods for fixed capital formation on own-account. For services, the most important type refers to owner-occupied dwellings. Values for these imputed flows are to be obtained by applying prices of similar products when marketed and the deflator should therefore be the same. Since it is usually necessary to value output of own-account construction by costs of production rather than prices, the deflator has to be adjusted in this respect.

• 10.38. The most important flows in category (c) are those whose value at current prices is obtained as a difference between the values of two flows of goods. This arises in the case of trade margins, whose value at current prices is defined as the difference between the actual or imputed price realized on a good purchased for resale by the wholesale and retail trades and the price that would have to be paid by the distributor to replace the good at the time it was sold or otherwise disposed of. By one method, estimates of trade margins at constant prices can therefore also be made by difference, by subtracting the constant-price value of goods bought for resale from the constant-price value of goods resold by these trades. An alternative method of measurement would be to extrapolate the trade margins of the base year either by the volume of sales or by the volume of purchases made by the wholesale and retail trades. To be correct, this alternative has to take into account the fact that trade margins vary among different products and uses. This is explicitly acknowledged in the supply and use tables.

• 10.39. Category (c) also includes output of travel agency services measured as the value of service charges of agencies (fees and commission charges). These services can also be measured as the difference between two flows: the full payment made by the purchaser and the expenditure made for transport and accommodation by the producer. The volume measure can be obtained as the difference between these flows calculated at constant prices. Alternatively, the fee or commission can be defined as the price per unit of the type of transportation or accommodation arranged and the volume indicator for the service charge would therefore move in the same way as these flows.

• 10.40. The flows in category (d) consist of financial intermediation services: service charges from insurance and pension funds are also included. Financial intermediation services are provided by banks and other financial corporations and consist of lending money to businesses or households, providing a safe and convenient means of saving, safeguarding money and other valuables, buying and selling foreign currencies, clearing cheques, providing general economic intelligence, dealing in stocks and bonds, and offering investment advice. In some cases these services are easily defined and specifically paid for, for example in the case of renting space in bank vaults, or when fees are charged in connection with issues of stocks, bonds or loans. The current value of transactions can then be defined, as well as prices and quantities necessary for price and volume measurement. However, a breakdown into price and volume components for financial intermediation services indirectly measured and for insurance services can usually only be made on arbitrary grounds and would have to be based on conventions.

Flows of non-market services

• 10.41. The non-market services produced by general government and non-profit institutions serving households (NPISH) cover a vast range of services both necessary and useful to society. They fall into two main categories:

• (a) services provided to individuals, i.e. whose consumers or beneficiaries are individually identifiable. Consumption of these services requires individual initiative on the part of those concerned;

• (b) pure collective services, i.e. services which are consumed jointly by the entire population.

• 10.42. The services provided to individuals can be given to single individuals (e.g. medical care) or to groups of individuals (e.g. teaching). By their nature, these services can be supplied on a market or a non-market basis; in many cases, the individual can obtain services of this type either by applying to a market unit (paying the price) or by turning to a non-market unit of general government or NPISH (getting the services free, or almost free).

For market units the method of deflating current values by price indices should be used, since the variations in the mix of products with differing prices are then correctly shown as influencing volumes rather than prices. For non-market services provided to individuals, output estimates can be based on quantity indicators. For education these may relate to numbers of hours spent by pupils in classes or in individual tutoring, and for non-market health services the indicators should reflect treatment in hospitals or visits to doctors or nurses. In both cases there is a quality dimension reflected in the amount of resources provided per pupil or patient. Care must be taken to use data with a detailed breakdown so that each indicator for which calculations are made is as homogeneous as possible in respect of costs. It is only then that changes in the mix of products are shown correctly as volume changes.

In the case of services provided to individuals, changes in the volume of their output and consumption should, in principle, be measured on the basis of the use which is made of these services; this will avoid using different criteria for the same services depending on whether they are market or non-market. Of course, any change in quality must be treated as a change in volume; but this applies as much to market services as to non-market services provided to individuals.

• 10.43. The pure collective services are produced by general government for the benefit of the entire population. In fact, they cover a vast range of activities such as general public services, national defence, foreign affairs, justice and the police, town planning and the environment, economic policy, etc. Since these services are consumed collectively, indirectly and continuously, the volume of their output cannot be measured by the extent to which they are utilised.

• 10.44. It may not be possible in practice to obtain reliable quantity indicators for non-market services provided for individuals and these may therefore have to be measured in terms of volume by the same methods as for pure collective services. It is then necessary to start from a valuation at constant prices of the different cost elements of this output, i.e.:

• (a) intermediate consumption;

• (b) compensation of employees;

• (c) other taxes on production, less other subsidies on production;

• (d) consumption of fixed capital.

The use of input-measures as proxies for output implies that analysis of productivity is not possible.

• 10.45. The calculation of intermediate consumption at constant prices poses no particular theoretical problems base-year since intermediate consumption relates to goods and market services. It can be done either by deflating current values by a price index of intermediate consumption or on the basis of quantities revalued at base-year prices.

• 10.46. Calculation at constant prices of the compensation of employees and the consumption of fixed capital in non-market service industries is done by the general methods described in paragraphs 10.53 and 10.54 for example. Other taxes on production are often of a type that can be related to a volume indicator, for example volume of employment, number of cars used.

Taxes and subsidies on products and imports

• 10.47. Although essentially limited to transactions involving goods and services, the integrated system of price and volume indices does not exclude the possibility of calculating measures of changes in price and volume for certain other transactions. This possibility exists, in particular, in the case of taxes and subsidies directly linked to the quantity or value of the goods and services which are the subject of certain transactions. In the supply and use tables, the values of these are shown explicitly. By applying the rules described below, it is possible to obtain price and volume measures for the categories of taxes and subsidies which are recorded in the goods and services accounts, namely:

• (a) taxes on products, excluding VAT (D.212 and D.214);

• (b) subsidies on products (D.31);

• (c) VAT on products (D.211).

• 10.48. The simplest case is that of taxes which represent a fixed amount per unit of quantity of the product which is the subject of the transaction. The value of the revenue from such a tax depends on:

• (a) the quantity of products involved in the transaction;

• (b) the amount levied per unit, i.e. the taxation price.

The breakdown of the value change into its two components presents virtually no difficulties. The variation in volume is determined by the change in the quantities of products taxed; the price variation corresponds to the change in the amount levied per unit, i.e. to the change in the taxation price.

• 10.49. A more frequent case is that in which the tax represents a certain percentage of the value of the transaction. The value of the revenue from such a tax then depends on:

• (a) the quantity of products involved in the transaction;

• (b) the price of the products involved in the transaction;

• (c) the tax rate (as a percentage).

The taxation price is then obtained by applying the rate to the price of the product. The change in value of the revenue from a tax of this type can also be divided into a volume change, determined by the change in the quantities of products taxed, and a price change corresponding to the change in the taxation price (b × c).

• 10.50. The amount of tax on products (excluding VAT) (D.215 and D.214) is measured in terms of volume by applying to the quantities of products produced or imported the taxation prices of the base year or by applying to the value of output or imports, revalued at the prices of the base year, the tax rates of the base year. Attention has to be paid to the fact that taxation prices may differ among different uses. This is taken into account in the supply and use tables.

• 10.51. Similarly, the amount of subsidies on products (D.31) is measured in terms of volume by applying to the quantities of products produced or imported the subsidy prices of the base-year or by applying to the value of output or imports, revalued at the prices of the base-year, the rates of subsidy of the base-year, taking into account different subsidy prices for different uses.

• 10.52. VAT on producs (D.211) is, both for the whole economy and for individual industries and other users, calculated on a net basis and refers only to non-deductible VAT. This is defined as the difference between VAT invoiced on the products and VAT deductible by the users of these products. Alternatively, it is also possible to define VAT on products as the sum of all non-deductible amounts which have to be paid by users.

Non-deductible VAT at constant prices can be calculated by applying the VAT rates in force in the base-year to the flows expressed in the prices of the base-year. Any change in the rate of VAT for the current year will therefore be reflected in the price index and not in the volume index of non-deductible VAT.

The fraction of deductible VAT in invoiced VAT and hence non-deductible VAT may change:

• (a) either because of a change in the right to deduct VAT, resulting from a change in tax laws or regulations, taking effect with or without a time lag;

• (b) or because of changes in the pattern of uses of the product (e.g. increase in the proportion of uses on which VAT may be deducted). A change in the amount of deductible VAT resulting from a change in the right to deduct VAT will by the method described be treated as a change in the taxation price, as will a change in the rate of invoiced VAT. On the other hand, a change in the amount of deductible VAT resulting from a change in the pattern of uses of the product constitutes a change in the volume of deductible VAT to be reflected in the index of the volume of VAT on products.

Consumption of fixed capital

• 10.53. The calculation of volume measures of the consumption of fixed capital poses few problems when good data on the composition of the stock of fixed capital goods are available. The perpetual inventory method, used by most countries, already implies, for the estimation of the consumption of fixed capital at current prices, the need to pass via a calculation of the stock of fixed capital goods at constant prices. To go from a valuation at historic cost to one at replacement cost, it is first necessary to value capital goods acquired over a number of different periods on a homogeneous basis, i.e. base-year prices. The price and volume indices derived in the process can therefore be used to calculate the value of the consumption of fixed capital at constant prices and the associated price index.

Where there is no perpetual inventory of the stock of fixed capital goods, the change in the consumption of fixed capital at constant prices can be obtained by deflating the current price data by price indices derived from data on gross fixed capital formation by product. Account has then to be taken of the age structure of the capital goods acquired.

Compensation of employees

• 10.54. For the purpose of measuring the volume of input from employee labour, the quantity unit for compensation of employees may be considered to be an hour's work of a given type and level of skill. As with goods and services, different qualities of work must be recognized and quantity relatives calculated for each separate type of work. The price associated with each type of work is the compensation paid per hour, which may vary, of course, between different types of work. A volume measure of work done may be calculated as a weighted average of the quantity relatives for different kinds of work, weighted by the values of compensation of employees in the previous year or fixed base year. Alternatively, a wage rate index may be calculated for work by calculating a weighted average of the proportionate changes in hourly rates of compensation for different types of work, again using compensation of employees as weights. If a Laspeyres-type volume index is calculated indirectly by deflating the changes in compensation of employees at current values by an index of the average change in hourly compensation, the latter should be a Paasche-type index.

• 10.55. For the purpose of measuring the real purchasing power of compensation of employees, this flow can be deflated by an index reflecting the uses made of these earnings. The price index normally chosen for this purpose is the implicit deflator for individual consumption expenditure or the consumer price index.

Stocks of produced fixed assets and inventories

• 10.56. Constant-price data are needed both for stocks of produced fixed assets and for inventories. For the former, such data as are necessary for the calculation of capital output ratios are available if use is made of the perpetual inventory method. In other cases information on the values of stocks of assets may be collected from producers and deflation made by the price indices used for fixed capital formation, taking into account the age structure of stocks.

Changes in inventories are measured by the value of entries into inventories less the value of withdrawals from inventories, and the value of any recurrent losses of goods held in inventories during a given period. Constant-price estimates can be derived by the deflation of these components. When changes in the volume and the prices of inventories are fairly regular, estimates of changes in inventories can also be obtained by multiplying the volume change of inventories by average prices for the current year or the base year. As a second alternative and as a cross-check, estimates of changes in inventories can also be obtained as the difference between stocks of inventories held at the end and the beginning of the period, respectively. For this purpose the value of inventories minus revaluation according to the accounts of producers has to be revalued and expressed at the average prices, either relating to the current year or to the base-year. If they refer to the current year, the value measures the volume changes in inventories at current prices. If the average prices refer to a base-year, the value corresponds to volume changes in inventories at base-year prices.

Measures of real income for the total economy

• 10.57. It is not possible to divide income flows into a price and a quantity component and for this reason price and volume measures cannot be defined in the same way as for the flows and stocks described earlier. Income flows can be measured in real terms only if one chooses some selected basket of goods and services on which the income is typically spent and uses the price index for this basket as a deflator of current incomes. The choice is always arbitrary in the sense that income is seldom spent specifically for purchases during the period in question. Some of it may be saved for purchases in later periods or, alternatively, the purchases during the period may be partly financed from savings made earlier.

• 10.58. Gross domestic product at constant prices measures the total production (less the intermediate consumption) in volume terms for the total economy. The total real income of residents is influenced not only by this volume of production but also by the rate at which exports can be traded against imports from the rest of the world. If the terms of trade improve, fewer exports are needed to pay for a given volume of imports, so that at a given level of domestic production goods and services can be reallocated from exports to consumption or capital formation.

• 10.59. The real gross domestic income can be derived by adding the so-called trading gain to volume figures on gross domestic product. The trading gain — or, as the case may be, loss — is defined as:

Image omitted; see official source

i.e. the current balance of exports less imports, deflated by a price index P, less the difference between the deflated value of exports and the deflated value of imports. The choice of an appropriate deflator P for the current trade balances should be left to the statistical authorities in a country, taking account of the particular circumstances of that country. In the circumstances in which there is uncertainty about the choice of deflator an average of the import and the export price indices is likely to provide a suitable deflator.

• 10.60. Various real income aggregates are identified and defined in the way shown in the following.

Gross domestic product at constant prices	Gross domestic product at constant prices
plus	the trading gain or loss from changes in the terms of trade
equals	real gross domestic income
plus	real primary incomes receivable from abroad
minus	real primary incomes payable to abroad
equals	real gross national income
plus	real current transfers receivable from abroad
minus	real current transfers payable to abroad
equals	real gross national disposable income
minus	consumption of fixed capital at constant prices
equals	real net national disposable income.

To be able to express the various national income aggregates in real terms, it is recommended that receivables and payables of primary incomes and transfers from and to abroad should be deflated with an index of gross domestic final expenditure. Real national disposable income is to be expressed on a net basis by deducting from its gross value the consumption of fixed capital at constant prices.

CHOICE OF INDEX NUMBER FORMULAE AND THE BASE YEAR

• 10.61. The construction of an integrated system of price and volume indices entails a deliberate choice as to the types of indices to be used.

• 10.62. The preferred measure of year-to-year changes in volume is a Fisher volume index which is defined as the geometric mean of the Laspeyres and the Paasche indices. Changes in volume over longer periods are obtained by chaining, i.e. by cumulating the year-to-year volume movements.

• 10.63. The preferred measure of year-to-year changes in prices is a Fisher price index. Price changes over long periods are obtained by chaining the year-to-year price movements.

• 10.64. Chain indices that use Laspeyres volume indices to measure changes in volume and Paasche price indices to measure year-to-year price movements provide acceptable alternatives to Fisher indices.

• 10.65. Although the preferred measure of volume and price is a chain index, it must be recognized that the lack of additive consistency can be a serious disadvantage for many types of analysis.

An aggregate is defined as the sum of its components. Additivity requires this identity to be preserved when the values of both an aggregate and its components in some reference period are extrapolated over time using a set of volume index numbers.

• 10.66. It is therefore recommended that disaggregated constant price data, i.e. direct valuation of current quantities at base-year prices, are compiled in addition to the chain indices for the main aggregates.

Estimating accounts data in constant prices has to be done at the finest level of detail possible if the data are to be consistent within the framework of an integrated system of price and volume measures. The supply and use tables form the central, conceptual and statistical framework for all the measures at constant prices. Additional data are found in supplementary tables.

Constant price series have nevertheless to be rebased in the course of time. The ESA has adopted the principle of changing the base year every five years as from 1995. When the base year is changed it is customary to link the data on the old base to the date on the new base rather than to carry the rebasing backwards. When the base year is updated additivity is lost as a result of linking.

• 10.67. When base-year values are extrapolated by chain volume indices, it will have to be explained to users why there is no additivity in the tables.

The non-additive ‘constant price’ data is published without any adjustment. This method is transparent and indicates to users the extent of the problem.

This does not preclude the possibility that there may be circumstances in which compilers may judge it preferable to eliminate the discrepancies in order to improve the overall consistency of the data.

INTERSPATIAL PRICE AND VOLUME INDICES

• 10.68. Comparisons of prices and volumes between countries have to overcome the difficulty in comparing different national currencies. Since exchange rates are not sufficiently stable for this purpose and do not reflect differences in purchasing power in a correct way, it is necessary to use a methodology similar to the one used for intertemporal comparisons between different periods within a single country. Price and volume indices have therefore to be compiled between pairs of countries, applying the same kinds of index number formulae as when measuring changes between time periods. Either of the two countries A and B can be used to give the weights and, viewed from the angle of country A, a Laspeyres-type index with weights from country A can be calculated as well as a Paasche-type using weights from country B.

• 10.69. If the economies of the two countries differ much from one another, the spread between these two indices may be quite large and the results would depend too much on which one is chosen. For binary comparisons the ESA therefore requires an average between the two, in the form of a Fisher index.

• 10.70. Direct quantitative comparisons between economic situations that have little in common with each other are inherently difficult and the method of deflation of current values with price indices is therefore the best alternative. This applies even more in international than in intertemporal comparisons. By careful specification and identification of products, price relatives can be calculated from information collected in price surveys in each country. As prices are quoted in national currencies, the interpretation of the price relatives introduces the concept of purchasing power parity (PPP). For a given product the PPP between two currencies of countries A and B is defined as the number of units of country B's currency that are needed in country B to purchase the same quantity of the product as one unit of country A's currency will purchase in country A. PPPs for groups of products and successively higher levels of aggregation up to GDP are obtained by weighting PPPs for products by their share in expenditure. In order to arrive at a price level index between the two countries, the PPP index has to be divided by the current exchange rate between the two currencies concerned.

• 10.71. For non-market services, international comparisons face the same problem as intertemporal comparisons. This means that outputs are measured as the sum of inputs. The method used at present in interspatial comparisons is to obtain PPPs on the basis of price relatives for important elements in these inputs. This method, which implies volume comparisons of inputs, fails to take into account differences in productivity in non-market service production in the countries compared. It is important, therefore, to develop methods which instead lead to comparisons of the volume of output of non-market services. This should in principle be feasible for individual non-market services, in the same general way as when intertemporal comparisons are concerned.

• 10.72. The need to make international comparisons of prices and volumes between countries is recognized in the ESA. The main objective is volume comparisons of GDP and its uses and the condition of transitivity must be met. Transitivity means that the direct index for country C based on country A is equal to the indirect index obtained by multiplying the direct index for country B based on country A by the direct index for country C based on country B.

• 10.73. The approach adopted in the ESA to the calculation of a set of multilateral volume measures and PPPs is to start from binary comparisons between all possible pairs of countries considered. The Fisher indices used for this purpose are not transitive, but it is possible to derive from them a set of transitive indices that resemble the original Fisher indices as closely as possible, using the traditional criterion of least squares for this purpose. Minimising the deviations between the original Fisher indices and the desired transitive indices leads to the so-called EKS formula.

• 10.74. The EKS index utilizes all the indirect indices linking country i to country k as well as the direct index between them. Between countries i and k it is the geometric mean of the direct index between i and k and every possible indirect index connecting countries i and k. The direct index is given twice the weight of each indirect index. Transitivity is achieved by involving every other country in the EKS index for any given pair of countries.

CHAPTER 11

POPULATION AND LABOUR INPUTS

• 11.01. Certain comparisons between countries, or between industries or sectors within the same economy, become meaningful only when the aggregates in the national accounts (for example, gross domestic product, the final consumption of households, the value-added of an industry, compensation of employees) are considered in relation to the number of inhabitants and labour input variables. It is therefore necessary to have definitions of the total population, employment, jobs, total hours worked, full-time equivalence and employee labour input at constant compensation, which are closely linked to the concepts used in the national accounts.

• 11.02. These titles are defined in the system on the basis of the concepts of economic territory and centre of interest.

• 11.03. Labour inputs must be classified on the basis of the same statistical units as used for the analysis of production, namely the local kind-of-activity unit and the institutional unit.

• 11.04. The aggregates to which the figures for population and labour inputs are related are annual totals. Therefore, average population and labour inputs during the year should be used.

When inquiries are conducted at several times during the course of the year, the figure taken is the average of the results obtained on these various dates.

When a single inquiry is made, is is important to examine if the period used is fully representative; the last available information on variations throughout the year should be used in estimating data for the year as a whole. For example, when estimating the mean employment, some allowance should be made for the fact that certain people do not work throughout the whole year (casual and/or seasonal workers).

TOTAL POPULATION

• 11.05. | | | | --- | --- | | Definition: | On a given date, the total population of a country consists of all persons, national or foreign, who are permanently settled in the economic territory of the country, even if they are temporarily absent from it. For some purposes, an annual average of head counts will provide an appropriate basis for estimating national accounts variables or for use as a denominator in comparisons. |

• 11.06. Total population is defined for national accounts according to the concept of residence (see units and grouping of units chapter).

A person who is staying, or intends to stay, on the economic territory of the country for a period of one year or more is regarded as permanently settled there.

A person is regarded as being temporarily absent if he or she is permanently settled in the country but is staying, or intends to stay, in the rest of the world for a period of less than one year.

All individuals who belong to the same household ([^E0109]) are resident where the household has a centre of economic interest: this is where the household maintains a dwelling, or succession of dwellings, which members of the household treat, and use, as their principal residence. A member of a resident household continues to be a resident even if that individual makes frequent journeys outside the economic territory because its centre of economic interest remains in the economy in which the household is resident.

• 11.07. The total population of a country includes:

• (a) nationals settled in the country;

• (b) national civilians who are staying abroad for a period of less than one year (frontier workers, seasonal workers, tourists, patients, etc.);

• (c) foreign civilians settled in the country for a period of one year or more (including the personnel ([^E0110]) of the institutions of the European Communities and of international civilian organizations located within the geographic territory of the country);

• (d) foreign military personnel (102)  working with international military organizations located within the geographic territory of the country;

• (e) foreign technical assistance personel (102)  on long-term assignments who work in the country and are deemed to be employed by their host government on behalf of the government, or international organization, which is actually financing their work.

By convention, the total population also includes the following, irrespective of the length of their stay outside the country:

• (a) national students however long they study abroad;

• (b) members (102)  of the country's armed forces stationed in the rest of the world;

• (c) nationals (102)  who are on the staff of national scientific bases established outside the geographic territory of the country;

• (d) nationals (102)  who are on the staff of diplomatic missions abroad;

• (e) nationals (102)  who are members of the crews of fishing boats, other ships, aircraft and floating platforms operating partly, or wholly, outside the economic territory.

• 11.08. Conversely, the total population of a country does not include:

• (a) foreign civilians staying on the territory for less than a year (frontier workers, seasonal workers, tourists, patients, etc.);

• (b) national civilians staying abroad for a period of one year or more;

• (c) national military personnel working with international organizations located in the rest of the world;

• (d) national technical assistance personnel on long-term assignments who work abroad and are deemed to be employed by their host government on behalf of the government, or international organization, which is actually financing their work.

and also, by convention:

• (a) foreign students however long they study in the country;

• (b) members of the armed forces of a foreign country who are stationed in the country;

• (c) the foreign personnel of foreign scientific bases located on the geographic territory of the country;

• (d) members of foreign diplomatic missions stationed in the country.

• 11.09. The definition given above differs from the present (or de facto) population, which consists of persons actually present on the geographic territory of a country at a given date.

ECONOMICALLY ACTIVE POPULATION

• 11.10. | | | | --- | --- | | Definition: | The economically active population comprises all persons of either sex, and above a certain age, who furnish the supply of labour for the productive activities (falling in the production boundary of the system), during a specified time-reference period. It includes all persons who fulfil the requirements for inclusion among the employed (employees or self-employed) or the unemployed. |

The ‘employees’ and ‘self-employed’ are defined under the title ‘employment’.

The ‘unemployed’ are defined under the title ‘unemployment’.

EMPLOYMENT

• 11.11. | | | | --- | --- | | Definition: | Employment covers all persons — both employees and self-employed — engaged in some productive activity that falls within the production boundary of the system. |

EMPLOYEES ([^E0111])

• 11.12. | | | | --- | --- | | Definition: | Employees are defined as all persons who, by agreement, work for another resident institutional unit and receive a remuneration (recorded as D.1 compensation of employees). |

The relationship of employer to employee exists when there is an agreement, which may be formal or informal, between an enterprise and a person, normally entered into voluntarily by both parties, whereby the person works for the enterprise in return for remuneration in cash or in kind.

Employees are classified here if they are not also in self-employment which constitutes their principal activity: in that case they are classified under self employed persons.

• 11.13. The following categories are included:

• (a) persons (manual and non-manual workers, management personnel, domestic staff, people carrying out remunerated productive activity under employment programs) engaged by an employer under a contract of employment;

• (b) civil servants and other government employees whose terms and conditions of employment are laid down by public law;

• (c) the armed forces, consisting of those who have enlisted for both long and short engagements and also conscripts (including conscripts working for civil purposes);

• (d) ministers of religion, if they are paid directly by general government or a non-profit institution;

• (e) owners of corporations and quasi-corporations if they work in these enterprises;

• (f) students who have a formal commitment whereby they contribute some of their own labour as an input into an enterprise's process of production in return for remuneration and (or) education services;

• (g) outworkers ([^E0112]) if there is an explicit agreement that the outworker is remunerated on the basis of the work done: that is, the amount of labour which is contributed as an input into some process of production;

• (h) disabled workers, provided the formal or informal relationship of employer to employee exists;

• (i) persons employed by temporary employment agencies, who are to be included in the industry of the agency which employs them, and not in the industry of the enterprise for which they actually work. But for input-output analysis, reclassifications of these people and of all the related costs can be considered (see paragraph 9.51).

• 11.14. Persons temporarily not at work are also considered as employees provided they have a formal job attachment. This formal attachment should be determined according to one or more of the following criteria:

• (a) the continued receipt of wage or salary;

• (b) an assurance of return to work following the end of the contingency, or an agreement as to the date of return;

• (c) the elapsed duration of absence from the job which, wherever relevant, may be that duration for which workers can receive compensation benefits without obligations to accept other jobs.

This covers persons temporarily not at work because of illness or injury, holiday or vacation, strike or lockout, educational or training leave, maternity or parental leave, reduction in economic activity, temporary disorganization or suspension of work due to such reasons as bad weather, mechanical or electrical breakdown, or shortage of raw materials or fuels, or other temporary absence with or without leave.

SELF-EMPLOYED PERSONS

• 11.15. | | | | --- | --- | | Definition: | Self-employed persons are defined as persons who are the sole owners, or joint owners, of the unincorporated enterprises in which they work, excluding those unincorporated enterprises that are classified as quasi-corporations. Self-employed persons are classified here if they are not also in a paid employment which constitutes their principal activity: in that latter case they are classified as employees. |

They may be temporarily not at work during the reference period for any specific reason. The compensation for self-employment is mixed income.

• 11.16. Self-employed persons also include the following categories:

• (a) unpaid family workers, including those working in unincorporated enterprises engaged wholly or partly in market production;

• (b) outworkers whose income is a function of the value of the outputs from some process of production for which they are responsible, however much, or little work was put in;

• (c) workers engaged in production undertaken entirely for their own final consumption or own capital formation, either individually or collectively.

Unpaid voluntary workers are included with self-employed persons if their volunteer activities result in goods, for example the construction of a dwelling, church or other building. But if their volunteer activities result in services, for example care taking or cleaning without payment, they are not included with employment, because those volunteer services are excluded from production (see paragraph 3.08).

There is no labour input into the production of the services of owner-occupied dwellings; the owner-occupiers of dwellings are not, as such, considered as self-employed persons.

EMPLOYMENT AND RESIDENCE

• 11.17. The results of the activity of producer units can only be compared with employment if the latter includes both the residents and the non-residents who work for resident producer units.

Employment therefore also includes the following categories:

• (a) non-resident frontier workers, i.e. persons who cross the border each day to work in the economic territory;

• (b) non-resident seasonal workers, i.e. persons who move into the economic territory and stay there for less than one year in order to work in industries which periodically require additional labour;

• (c) members of the country's armed forces stationed in the rest of the world;

• (d) nationals who are on the staff of national scientific bases established outside the geographic territory of the country;

• (e) nationals who are on the staff of diplomatic missions abroad;

• (f) members of the crews of fishing boats, other ships, aircraft and floating platforms operated by resident units;

• (g) local employees of general government bodies situated outside the economic territory.

• 11.18. On the other hand, the following are excluded from employment:

• (a) residents who are frontier workers or seasonal workers, i.e. who work in another economic territory;

• (b) nationals who are members of the crews of fishing boats, other ships, aircraft and floating platforms operated by non-resident units;

• (c) local employees of foreign government agencies located on the geographic territory of the country;

• (d) the personnel of the institutions of the European Communities and international civilian organizations located within the geographic territory of the country (including local employees directly recruited);

• (e) members of the armed forces working with international military organizations located on the geographic territory of the country;

• (f) nationals working in foreign scientific bases established in the economic territory.

• 11.19. In order to be able to make the transition to the concepts generally used in labour force statistics (employment on a national basis), the ESA especially provides for the following items to be shown separately:

• (a) the conscripted forces (not included in the labour force statistics, but included in the ESA under general government services);

• (b) residents working for non-resident producer units (included in labour force statistics but not included in employment as defined in the ESA);

• (c) non-residents working with resident producer units (not included in labour force statistics but included in employment as defined in the ESA);

• (d) resident workers living permanently in an institution;

• (e) resident workers under the age considered in labour force statistics.

UNEMPLOYMENT

• 11.20. | | | | --- | --- | | Definition: | In accordance with the norms established by the International Labour Organization (13th International Conference of Labour Statisticians), the ‘unemployed’ comprise all persons above a specified age who during the reference period were: (a) ‘without work’, i.e. not in paid employment or self-employment; (b) ‘currently available for work’, i.e. were available for paid employment or self-employment during the reference period; and (c) ‘seeking work’, i.e. had taken specific steps in a specified recent period to seek paid employment or self-employment. |

The specific steps may include registration at a public or private employment exchange; application to employers; checking at worksites, farms, factory gates, market or other assembly places; placing or answering newspaper advertisements; seeking assistance of friends or relatives; looking for land, building, machinery or equipment to establish own enterprise; arranging for financial resources; applying for permits and licences, etc.

• 11.21. | | | | --- | --- | | Definition: | Unemployment rates represent unemployed persons as a percentage of the economically active population. |

They are usually calculated for sex-age groups and sometimes further cross-classified by other demographic variables such as marital status, qualifications or nationality.

JOBS

• 11.22. Definition : A job is defined as an explicit or implicit contract ([^E0113]) between a person and a resident institutional unit to perform work ([^E0114]) in return for compensation ([^E0115]) for a defined period or until further notice.

In that definition, both employee and self-employment jobs are covered: that is, an employee job if the person belongs to another institutional unit than the employer and a self-employment job if the person belongs to the same institutional unit as the employer.

• 11.23. The concept of jobs differs from the concept of employment as defined above:

• (a) it includes second, third, etc. jobs of the same person. Those second, third, etc. jobs of a person may either successively follow one another within the reference period (usually, a week) or, as when someone has an evening job as well as a daytime job, run in parallel;

• (b) on the other hand, it excludes persons temporarily not at work but who have a ‘formal attachment to their job’ in the form, for instance, of ‘an assurance of return to work or an agreement as to the date of return’. Such an understanding between an employer and a person on lay-off or away on training is not counted as a job in the system.

JOBS AND RESIDENCE

• 11.24. A job in the economic territory of the country is an explicit or implicit contract between a person (who may be resident in another economic territory) and an institutional unit resident in the country.

For measuring labour input into economic activity, only the residence of the producer institutional unit is relevant, because resident producers alone contribute to gross domestic product.

• 11.25. Moreover:

• (a) jobs are included in the count of jobs in the economic territory when the employees of a resident producer are working temporarily in another economic territory and when the nature and duration of the activity do not warrant its treatment as a notional resident unit of that other territory;

• (b) jobs are excluded from the count of jobs in the economic territory when performed for non-resident institutional units, that is, for units with a centre of interest in another country which have no intention of being active on the domestic territory for a year or more;

• (c) the jobs of the staff of international organizations and those of locally recruited staff engaged by foreign embassies are excluded from the count, since the employing units are not resident.

TOTAL HOURS WORKED

• 11.26. | | | | --- | --- | | Definition: | Total hours worked represent the aggregate number of hours actually worked as an employee or self-employed during the accounting period, when their output is within the production boundary. |

Because of the broad definition of employees which covers persons temporarily not at work but with a formal attachment, and part-time workers, the ESA recommends that the appropriate measure for productivity calculation is not a head count but total hours worked.

Total hours worked is the preferred measure of labour inputs for the system.

• 11.27. In accordance with the norms established by the International Labour Organization (10th International Conference of Labour Statisticians), total hours actually worked cover:

• (a) hours actually worked during normal working hours;

• (b) hours worked in addition to those worked during normal working hours, and generally paid at higher rates than normal rate (overtime);

• (c) time which is spent at the place of work on tasks such as preparing the site, repair and maintenance work, the preparation and cleaning of tools, and the making-out of receipts, invoices, records of the length of time worked and other reports;

• (d) idle time spent at the place of work waiting or standing by because, for example, of temporary lack of work, the breakdown of machinery or accidents, or time spent at the place of work during which no work is done but for which payment is made under a guaranteed employment contract;

• (e) time corresponding to short periods of rest at the work place, including refreshment breaks.

• 11.28. On the other hand, hours actually worked do not include:

• (a) hours which are paid but not worked, such as paid annual holidays, public holidays, or sick-leave;

• (b) breaks for meals;

• (c) time spent travelling between home and the place of work, even when paid (construction workers). However, such travel organized in employers' time is included in hours of work.

• 11.29. Total hours worked is the aggregate number of hours actually worked during the accounting period in employee and self-employment jobs within the economic territory:

• (a) including work outside the economic territory for resident employer institutional units who have no centre of economic interest there;

• (b) excluding work for foreign employer institutional units who have no centre of economic interest within the economic territory.

• 11.30. Many surveys of enterprises record hours paid not hours worked.

In those cases, hours worked have to be estimated for each job group, using whatever information is available about paid leave etc.

• 11.31. For business cycle analysis, it may be useful to adjust total hours worked by adopting a standard number of working days per year.

FULL-TIME EQUIVALENCE

• 11.32. | | | | --- | --- | | Definition: | Full-time equivalent employment, which equals the number of full-time equivalent jobs, is defined as total hours worked divided by the average annual number of hours worked in full-time jobs within the economic territory. |

• 11.33. This definition does not necessarily describe how the concept is estimated: since the length of a full-time job has changed through time and differs between industries, methods which establish the average proportion and average hours of less than full-time jobs in each job group have to be used. A normal full time week must first be estimated in each job group. If possible, a job group can be defined, inside an industry, according to sex and (or) kind of work of people. Hours contractually agreed upon constitute, for employee jobs, the appropriate criteria for determining those figures. Full-time equivalent is calculated separately in each job group, then summed.

• 11.34. In spite of the fact that total hours worked are the best measure of labour inputs, there are some advantages in the full-time equivalence: it can be estimated more easily and this facilitates international comparisons with countries which can only estimate full-time equivalent employment.

EMPLOYEE LABOUR INPUT AT CONSTANT COMPENSATION

• 11.35. | | | | --- | --- | | Definition: | Employee labour input at constant compensation measures current labour inputs valued at the levels of compensation of employee jobs ruling during a selected base period. |

• 11.36. Compensation of employees at current prices divided by employee labour input at constant prices yields an implicit compensation price index comparable with the implicit price index of final uses.

• 11.37. The purpose of the concept of employee labour input at constant compensation is to express the changes in the composition of the work force, for example from lower paid to higher paid workers. To be effective, the analysis should be undertaken on an industry basis.

CHAPTER 12

QUARTERLY ECONOMIC ACCOUNTS

• 12.01. The quarterly economic accounts form an integral part of the system of national accounts and, among other uses, are very important for the analysis of the current year and calculation of provisional estimates for the last year. The quarterly economic accounts constitute a coherent set of transactions, accounts and balancing items, defined in both non-financial and financial domains, recorded on a quarterly basis. They adopt the same principles, definitions and structure as the annual accounts, subject to certain modifications, due to the period of time covered.

• 12.02. The importance of quarterly economic accounts derives essentially from the consideration that they are the only coherent set of indicators, available with a short time lag, able to provide a short term overall picture of both non-financial and financial economic activity.

• 12.03. The period of time to which the quarterly accounts relate and the need to have reliable information as quickly as possible determine certain typical features. These features include statistical methods of compiling accounts, seasonality and the treatment thereof, consistency of quarterly and annual accounts and some account particularities related to the reference period. These typical features will be extensively analysed in a handbook of quarterly accounts that Eurostat intends to publish before the application of this methodology.

• 12.04. The statistical methods used for compiling quarterly accounts may differ quite considerably from those used for the annual accounts. They can be classified in two major categories: direct procedures and indirect procedures. Direct procedures are based on the availability at quarterly intervals, with appropriate simplifications, of the similar sources as used to compile the annual accounts. On the other hand, indirect procedures are based on time disaggregation of the annual accounts data in accordance with mathematical or statistical methods using reference indicators which permit the extrapolation for the current year. The choice between the different indirect procedures must above all take into account the minimization of the forecast error for the current year, in order that the provisional annual estimates correspond as closely as possible to the final figures. The choice between these approaches depends, among other things, on the information available at quarterly level.

• 12.05. The quarterly accounts series quite often show very short-term variations due to weather, habits, legislation, etc., usually defined as seasonal fluctuations. Although seasonality is an integral part of quarterly data, it is often an impediment to the correct identification and analysis of the cycle-trend component. From this consideration follows the need to compile both raw and seasonally adjusted accounts. The accounting consistency of seasonally adjusted figures should be ensured. A closely related problem to seasonal adjustment is that of the working days correction, which needs further consideration in the Eurostat handbook.

• 12.06. Since quarterly accounts adopt the same framework as annual accounts they have to be consistent over time with them. This implies, in the case of flow variables, that the sum of the quarterly data is equal to the annual figures for each year. In principle there are no obstacles to this condition being met for previous years. However, for the current year there is a problem of time priority between quarterly and annual data as quarterly data are normally available earlier than the annual figures. This problem may be solved by agreeing that the provisional estimates of annual figures are obtained by the aggregation of quarterly figures. When new annual information becomes available resulting in a revision of the provisional figures, the quarterly data have to be modified accordingly. Within some systems, the annual accounts are a by-product of the quarter system and there is no separate annual calculation.

• 12.07. The time consistency must be ensured for raw data and, compatibly with the seasonally adjustment procedures, for adjusted figures too.

• 12.08. If, in principle, most of the operations and balancing items are distributed with a certain regularity on all the quarters, there are anyway some operations that appear concentrated in one or two quarters of the year. This is the case for taxes on income, dividends, interest, etc. The treatment of these cases depends essentially on the underlying generation process.

• 12.09. From a theoretical point of view there are no obstacles to the layout used for the quarterly accounts being the same as that used for the annual accounts. However, in practice, it is useful to simplify and aggregate this scheme in order to obtain reliable quarterly figures as quickly as possible (see programme of tables and data to be supplied in the framework of the 1955 ESA).

CHAPTER 13

REGIONAL ACCOUNTS

• 13.01. Regional accounts are a regional specification of the corresponding accounts of the total economy. The regional accounts make use of the concepts used for the accounts of the total economy unless indicated otherwise in this section.

• 13.02. A full set of accounts at the regional level implies treating each region as a separate economic entity. In this context, transactions with other regions become a kind of external transaction. External transactions of the region should of course, be distinguished according to transactions with other regions of the country and transactions with the rest of the world.

• 13.03. Conceptual difficulties (see paragraphs 13.10 to 13.14) partly explain why regional accounts are limited to recording production activities by industry and to accounts for some institutional sectors like households.

REGIONAL TERRITORY

• 13.04. The regional economy of a country is part of the total economy of that country. The total economy is defined in terms of institutional units. It consists of all the institutional units which have a centre of interest in the economic territory of a country (see paragraph 2.04). The economic territory, although consisting essentially of the geographic territory, does not coincide exactly (see paragraph 2.05). The economic territory of a country can be divided into regional territories and the ‘extraregio’ territory.

• 13.05. The regional territory includes:

• (a) the region that is part of the geographic territory of a country;

• (b) any free zones, including bonded warehouses and factories under customs control in the region.

• 13.06. The extraregio territory is made up of parts of the economic territory of a country which cannot be attached directly to a single region. It consists of:

• (a) the national air-space, territorial waters and the continental shelf lying in international waters over which the country enjoys exclusive rights;

• (b) territorial enclaves (i.e. geographic territories situated in the rest of the world and used, under international treaties or agreements between States, by general government agencies of the country (embassies, consulates, military bases, scientific bases, etc.);

• (c) deposits of oil, natural gas, etc. in international waters, outside the continental shelf of the country, worked by resident units.

• 13.07. The nomenclature of territorial units for statistics (NUTS) provides a single, uniform breakdown of the economic territory of the European Union. The NUTS is the territorial classification for the compilation of regional accounts.

UNITS AND RESIDENCE

• 13.08. Two types of unit are distinguished. First of all the local KAU for the analysis of flows occurring in the process of production and in the use of goods and services. Secondly the institutional unit to analyse flows affecting income, capital and financial transactions, other flows and balance sheets.

• 13.09. The local KAU is the part of a KAU which corresponds to a local unit. The local unit is an institutional unit producing goods and services or a part thereof situated in a geographically identified place (see paragraph 2.106). Therefore, in principle the regional residence of a local KAU can be unambiguously determined.

Regarding the transactions with relation to the production activities, it is necessary to record flows between local KAUs, which belong to the same institutional unit and are located in different regions. The ESA recommends including deliveries between local KAUs in the definition of output and this is especially important in regional accounts.

• 13.10. In the case of institutional units two types of institutional units have to be considered in the context of regional accounts. First of all, there are uniregional units, the centre of economic interest of which is in one region and most of their activities take place in this region. Among uniregional units are households, corporations whose local KAUs are all located in the same region, local and State governments, at least part of social security and many NPIs serving households.

Secondly, there are multiregional units, the centre of economic interest of which is in more than one region. Many corporations and a number of NPIs are in this situation. To a greater extent, this is also the case for institutional units whose activities span the whole country such as central government and a small number of corporations, generally in a monopolistic or quasi-monopolistic situation, like the national railway corporation or the national electricity corporation.

• 13.11. All transactions of the uniregional institutional units are allocated to the region in which they have their centre of economic interest. Regarding households, the centre of economic interest is the region where they live, not the region where they work. Other uniregional units have their centre of economic interest in the region where they are located.

• 13.12. Some of the transactions of multiregional units cannot, strictly speaking, be regionalized. This is the case for most distributive and financial transactions. Consequently, balancing items of multiregional units may not be unambiguously defined at the regional level for multiregional units.

• 13.13. One may think of allocating all transactions of multiregional units between regions according to some rules of thumb. However, this should not be considered simply as a practical approximation. It implies a conceptual adaptation of the ESA, since the reasons which prevent including a full sequence of accounts for local KAUs/industries in the central framework also forbid, in principle, completely distributing all institutional units and their accounts between regions; for this would mean, in principle, building up a full set of accounts for local KAUs.

• 13.14. Due to the abovementioned considerations, the system of regional accounts is limited to:

• (a) regional industry aggregates on production activities:
• (1) gross value-added;
• (2) compensation of employees;
• (3) employment;
• (4) employees;
• (5) gross fixed capital formation;

• (b) gross domestic product per region (GDPR);

• (c) regional household accounts.

METHODS OF REGIONALIZATION

• 13.15. Regional accounts are based on the transactions of units that are resident in a regional territory. In general the regionalization can be done by using bottom-up methods, top-down methods or mixed methods. The methods may be described as follows:

• (a) bottom-up methods: the bottom-up methods of estimation involve the use of information on units that are resident in the region, and ascending by addition until the regional value of the aggregate is established. The regional values must add up to the corresponding national value;

• (b) top-down methods: the top-down methods involve the distribution of a national figure among regions, without attempting to single out resident units, by means of a distribution key which reflects as closely as possible the feature to be estimated. The methods are called top-down because the aggregate is allocated to a region and not to a single unit. However, the notion of a resident unit is needed in order to have a correct regional coverage of the key to be used;

• (c) mixed methods: the bottom-up methods are rarely encountered in their pure form. Therefore mixed methods may also be considered. For example, it can occur that a variable or an aggregate of variables can only be regionalized with the help of the bottom-up method at level NUTS-1. For a further regionalization at level NUTS-2 or NUTS-3 a top-down method has to be used.

• 13.16. In principle, the advantage of bottom-up methods is that they directly employ relevant sources at the regional level. An advantage of top-down methods is the guaranteed numerical consistency between national and regional accounts. A disadvantage is that the estimates are not produced with direct data but with a key that is supposedly correlated with the phenomenon to be measured.