Item 10: Compensation of Employees and Operating Surplus ESTP course - ESA 2010 National Accounts Luxembourg, 30 May - 3 June 2016 Eurostat

Components of income side GDP GDP income side Compensation of employees (+) Gross operating surplus/mixed income (incl CFC) (+) Taxes/subsidies on production (+) = GDP

Compensation of employees Defined in ESA 2010 (para 4.02) as: “total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during the accounting period”

“employer to an employee” Only includes employees Definition of ‘employees’ Self-employed workers receive “mixed income”

“total remuneration” Gross of taxes on income Includes holiday/sick pay, bonuses, tips and redundancy payments CoE includes: D.11 wages & salaries D.12 social contributions by employers

Wages “in cash or in kind” Wages and Salaries in cash Definition of “in kind”; examples (stock options, meals&drinks, company housing, company car, etc.) Valuing in-kind benefits

Re-routing social contributions D.11 salary D. 12 social contrib D. 61 social contrib To uncover hidden relations… D.62 social benefits for other citizens …but in conflict with cash flows

Types of social contributions 1. Actual contributions for social security or funded schemes 2. Imputed contributions for unfunded schemes Calculations: Payments-based vs. actuarial calculations

Summary CoE Recording: Sources: Receivable by households Payable by corporations, Govt, NPISH, rest-of-the-world Sources: Income tax registers, business stats Calculation imputed social contributions

Operating surplus Calculated as balancing item (=residual) No proper ESA definition, e.g. like CoE ESA 2010 (para 8.18) indicates: “… the surplus (or deficit) on production activities before account has been taken of the interest, rents or charges …” OS aimed to corporations, but households and Government may have OS too.

OS as balancing item: GDP from income side GDP production side GDP income side Output (+) Compensation employees (+) Intermediate consumption (-) Gross operating surplus (+) Taxes/subsidies on products (+) Taxes/subsidies on production (+) = GDP GOS = GDP – CoE – taxes/subsidies on production

OS in practice OS is conceptually a residual… …in practice it must be calculated, if we want an income GDP independent from production/expenditure approaches Most countries calculate (parts of) OS Use of business accounts Business accounting rules are national-based  cherry picking from accounts

OS includes Flows paid out of OS (i.e. ‘included’ in OS) OS includes: any income tax, society tax, etc. Dividends paid investment & depreciation of capital stock OS includes: mixed income of self-employed too! Mixed income – income from self-employment (wages and profit of the entrepreneur) Operating surplus – balancing item of generation of income account for owner-occupied dwellings

OS excludes revenues different from operational income e.g. capital gains, investment own assets (financial or not), dividends received,… Employers’ social contributions on behalf of employees (= part of CoE)

OS place in the System, graphically “sales” (output) – “current costs” (intermediate consumption) – “salaries” (compensation employees) = “profits” or “entrepreneurial income” (GOS) “profits” (GOS) + “other revenue” (property income) “interest/dividends” (property income) “taxes” (D.5) “investment” (P.5) “surplus available for acquiring financial assets” (B.9)

GDP income side revisited GDP output side GDP income side Output (+) Compensation employees (+) Intermediate consumption (-) Gross operating surplus (+) Taxes/subsidies on products (+) Taxes/subsidies on production (+) = GDP Why taxes/subsidies too? Need for valuation adjustment

EU27 GDP by income approach