Research Agenda: Productivity Adjustment for Government and Construction Labor

Productivity Adjustment for Government and Construction Labor

[see Task Force on PPP Compilation and Computation

Adjustment for productivity differentials across countries has been a major ICP initiative in the 2005 and 2011 rounds, designed to improve PPPs for government compensation. There are a number of outstanding issues for consideration in the 2017 ICP cycle.

The following excerpt from FOC report succinctly summarized the state of play with productivity adjustments:

“The use of a productivity adjustment for global linking of salaries in government services in ICP 2011 was an obvious improvement. There were, however, several weaknesses: the productivity adjustment calculated using capital-labor estimates for the whole economy for such specific areas as health, education and collective services is a very rough approximation (also, the accuracy of productivity adjustment factors for different countries seem to be different), and not all regions used productivity adjustment in the regional comparisons. In addition, the regions did not use the same methodology (e.g., OECD/Eurostat used the “output” approach for health/hospital services and education but other regions used the “input cost” approach). In effect, the results of the countries depend, in some cases heavily, on the regional methodology, and interregional comparability was decreased.” (Paragraph 37, E/CN.3/2016/9, UN, 2016)

A review of the compensation data by the Global ICP Unit revealed uneven quality and data gaps. There is scope to improve the productivity adjustment factors and the following topics are identified for research in this area in order to improve estimates of PPPs for government services for the 2017 comparison:

  • Review employee compensation data, examine data gaps, provide advice on filling them, and review gap-filling procedures;
  • Assess the quality of data for labor inputs and capital stocks portion of the productivity adjustment and evaluate them for consistency across countries;
  • Update productivity adjustment factors for use in the 2017 ICP cycle;
  • Examine effects of the adjustment factors not being used in some regions on the global results; and
  • Examine the scope for productivity adjustment for labor inputs in construction and make a recommendation as to whether productivity adjustments should be made in the 2017 ICP.