Measuring productivity in service sectors

Abstract

Productivity growth is an important source of economic wellbeing. Measuring productivity precisely, particularly at the level of the economy as a whole or at the sectoral level, is, however, a difficult task. Many of the problems of measurement are especially significant in the case of productivity measures for service sectors. This report examines the concept of productivity more broadly and the measurement of productivity in practice, with particular attention to the perspective of service sectors.

The second chapter of the report clarifies the concept of productivity and the aims of productivity measurement. Productivity is defined as the ratio of the quantity of outputs to the quantity of inputs. It thus describes the ability of a given production unit to convert inputs into outputs. In practice, measuring productivity requires more careful consideration of what a unit’s outputs and inputs are and how they are measured. Productivity measurement aims at comparison over time or between units. When several inputs are used in production and/or several outputs are produced, these must be aggregated in order to arrive at a productivity figure. The effect of pure price changes must be removed from monetary measures in order to calculate productivity. So-called growth accounting is used to determine what proportion of a change in productivity stems from growth in the quantities of different inputs. The most common productivity measure used at the level of the economy as a whole or at the sectoral level is value added per working hour.

The third chapter examines the problems associated with measuring productivity in service sectors and considers these in particular with respect to the largest sectors covered by the Service Union United PAM. The section also reviews the figures underlying the productivity data based on Finland’s national accounts for these sectors. In services, the correct measurement of output volume in particular is problematic. Each service produced may be different, and a service may be produced in collaboration with the consumer. The time and place of consumption are also characteristics of a service product. The quality of a service is difficult to define and measure, and also depends on the experience of the service user. Calculating pure price changes is, for the above reasons, especially difficult for services, which also complicates the measurement of output volume and productivity in service sectors.

National accounts data are generally used in sector-specific productivity calculations. In the accounts, an attempt is made to estimate the volume of output and value added — that is, the effect of price changes is removed from values — and changes in quality should be taken into account in price indices. The specific characteristics of service sectors in turn complicate the construction of accurate price indices and the incorporation of quality changes.

Section four examines the possibilities for refining productivity calculations or supplementing them with other indicators. In particular, consideration is given to whether it is possible to apply different methods of measuring output, to improve price indices with regard to quality control, or to use other data alongside productivity measures. Indices developed for measuring price changes that better account for quality changes require precise definition of quality characteristics and the collection of statistical data on them, which is not realistically feasible for all services. The direct measurement of outputs, which is carried out for example in the case of public services, would not unambiguously be a better method than current productivity measurement either. It is possible, for example, to seek to examine factors that correlate with productivity, such as occupational wellbeing or customer satisfaction, which are measured through the subjective experience of employees or customers. These too, however, are imperfect measures of productivity, and interpreting their development directly as changes in productivity is difficult. Alongside productivity figures, other indicators could nonetheless be used to obtain a more comprehensive picture. (AI translation)

Publication Information

Kangasniemi, M. (2012), Tuottavuuden mittaaminen palvelualoilla, Service Union United PAM publications 1/2012.

• ISSN: 1795-2832
• ISBN: 978-951-9509-88-7
• Publication in PDF-format