Copyright 2010, The World Bank Group. All Rights Reserved. Introduction to the SNA, advanced Lesson 10 Satellite accounts 1

Copyright 2010, The World Bank Group. All Rights Reserved. Background The concept of satellite accounts was described in detail in the 1993 SNA The use of satellite accounts was adopted during the 1993 SNA review because of the number of proposals for the SNA to be extended to incorporate additional concepts within its production boundary – the “tourism industry”, environmental accounts (“green GDP”) and unpaid household services were some of the more prominent proposals Given the relatively undeveloped state of these concepts at the time, satellite accounts were proposed as an alternative – they enable these data sets to be integrated as closely as possible with the SNA concepts but without impacting directly on the core accounts 2

Copyright 2010, The World Bank Group. All Rights Reserved. Background (continued) Alternative means of valuation can be tested in satellite accounts – the value of household services (commonly referred to as “unpaid household work”) can vary markedly depending on the valuation method used – estimating “green GDP” depends on the value placed on various environmental factors such as clean air, land degradation and the services provided by nature parks, all of which are problematical to value Satellite accounts have been produced by many countries in many fields over the past decade and a half – many of them have been regularly updated to provide a series for analysts 3

Copyright 2010, The World Bank Group. All Rights Reserved. Developing satellite accounts The characteristics of satellite accounts differ, depending on their main focus The best means of identifying the possibilities for developing satellite accounts is to examine some of those already produced In some cases, satellite accounts have become so well established that detailed conceptual frameworks have been developed to describe the issues involved in compiling these types of account – examples include Tourism satellite accounts, Health accounts, Environmental satellite accounts, and Accounts for non-profit institutions 4

Copyright 2010, The World Bank Group. All Rights Reserved. Tourism satellite accounts (TSA) A conceptual framework for tourism satellite accounts was released in 2000, followed by an updated version in 2008 Tourism is defined as the activities of persons travelling for leisure or business and staying in places outside their usual environment for less than one year The goals of the TSA are ambitious – to estimate macroeconomic aggregates of the size and economic contribution of tourism consistent with similar aggregates in the core national accounts – to measure tourism consumption – to produce data on employment linkages with other economic activities – to provide a link with physical indicators such as duration of stay, purpose of trip, modes of transport, etc 5

Copyright 2010, The World Bank Group. All Rights Reserved. Tourism satellite accounts (TSA) (continued) A visitor is defined as someone who is outside their usual environment but not employed by an entity resident in the place he is visiting – the usual environment is the area (home or workplace) within which a person is usually located Tourism is broader than those people who visit places for pleasure (sightseeing, taking photographs, shopping, attending exhibitions and shows etc) – it also includes travelling for business or for health reasons or for education or for training The concept of a “tourism industry” is set out in the TSA – it is the grouping of those establishments whose main activity corresponds to a tourism characteristic product 6

Copyright 2010, The World Bank Group. All Rights Reserved. Environmental satellite accounts GDP is designed to measure the economic production within a specified production boundary – the major emphasis in defining the production boundary is placed on goods and services that have a monetary value or which can be valued based on the price of similar products The concept of sustainable development relates to simultaneously balancing the economic, social and environmental needs of a community – if any one of these needs is out of balance then the others are also likely to be affected – for example, an economic downturn will impact on the social needs of a community through the unemployment created 7

Copyright 2010, The World Bank Group. All Rights Reserved. The conceptual framework (SEEA) The conceptual framework for environmental satellite accounts is the System of Integrated Environmental and Economic Accounting (SEEA) Environmental accounts aim to measure the impacts of using natural resources and the generation of residuals that pollute the air and water They also identify specific activities undertaken to prevent or combat the environmental impacts of human activity Many environmental indicators are available in the form of physical statistics (e.g. air pollution readings or the measure of total suspended solids in water) 8

Copyright 2010, The World Bank Group. All Rights Reserved. SEEA – Rationale for environment accounts The current monetary accounts are incomplete because they do not deal well with flows between the “real economy” and the environment – there is no clear or common definition of what constitutes the environmental or “green” economy – the SNA framework does not account effectively for the cost of using up natural resources The SEEA provides a view of accounting for the environment from the perspective of the environment but which can be linked to human interaction – land and ecosystem accounts A key rationale behind the development of SEEA to link directly with national accounts concepts is the way in which such links provide extra information in a coherent framework 9

Copyright 2010, The World Bank Group. All Rights Reserved. SEEA – Physical flow accounting The issues related to physical flow accounting can be under the headings of conceptual issues and of practical issues Conceptual issues – defining the product boundary “territory” is required rather than “residence” physical (non-valued) flows rather than values – defining and classifying residuals Practical issues – measuring different aspects in different units tonnes, joules and cubic metres – environmental areas are subject to different influences and operate differently, so they are recorded differently 10

Copyright 2010, The World Bank Group. All Rights Reserved. SEEA – valuation One of the major benefits of the SEEA is the way in which it assigns values to the physical environmental indicators On the other hand, one of the shortcomings of SEEA is the difficulty associated with estimating an appropriate price to apply to the physical measures There is no direct price available to value many environmental indicators – indirect methods of valuation have to be used – the resulting prices can be prone to large variations depending on the way questions are asked, the payment periods involved and even the order in which options are presented 11

Copyright 2010, The World Bank Group. All Rights Reserved. SEEA – valuation (continued) The SEEA suggests the costs incurred when major fixed assets are decommissioned should be included as part of the consumption of fixed capital during the life of the assets Other valuation issues that SEEA has to consider are – those relating to natural resources outside the scope of the SNA – measuring depletion and degradation A method recommended by SEEA to value environmental assets that are excluded from the SNA is the standard method of estimating the net present value of the assets – the net present value of an asset is the value of the income flows arising from the use of the asset, recorded as the discounted present value of expected future returns 12

Copyright 2010, The World Bank Group. All Rights Reserved. Unpaid household services Unpaid household services include tasks such as preparing and cooking meals, doing the laundry, ironing, caring for children etc. The SNA specifically excludes from the boundary of production any services produced within a household for its own consumption – however, the 2008 SNA provides details of how the value of these services can be presented in a satellite account Both conceptual and practical issues contributed to the decision to classify unpaid household services outside the SNA’s boundary of production Personal activities that cannot be performed by a third party should be excluded from a satellite account 13

Copyright 2010, The World Bank Group. All Rights Reserved. Unpaid household services – time use surveys The starting point for measuring unpaid household services is to obtain details of the amount of time that households spend on the various household activities – a time use survey (TUS) is used to obtain such data A TUS is very burdensome and time-consuming for those selected to participate and it is also costly for a national statistics office to conduct – a relatively small sample is selected in A TUS – those selected are asked to provide personal details and to report details of their daily activities SNA points out that the results from a TUS are not unambiguous – somebody may “multi-task” by preparing a meal while minding a small child and helping an older child with their homework all at the same time 14

Copyright 2010, The World Bank Group. All Rights Reserved. Unpaid household services – valuation The output from a TUS is data on the time spent on each type of household work included in the TUS classification – the data are equivalent to the labour component of the inputs used in the input cost approach to valuing non- market services, such as those provided by general government One of two broad methods can be used to value the time spent on unpaid household work – the first is based on what it would cost households in wages to hire others to do the household work for them – the second is based on what household members would have earned in wages had they spent the same amount of time on paid work as actually spent on unpaid work 15

Copyright 2010, The World Bank Group. All Rights Reserved. Unpaid household services – valuation issues Imputing a wage rate to the time spent by householders on different activities assumes that the householder and the person whose wage rate is being used have the same productivity – this is unlikely to be true because of the availability of specialised equipment by the professional – it should be noted that the cost of any equipment used by the householder is already included in household final consumption expenditure and so does not affect the value of unpaid household services The opportunity cost method assumes that the “income foregone” by the householder should be priced at the wages that could have been obtained for the time taken, which is unlikely in most cases 16

Copyright 2010, The World Bank Group. All Rights Reserved. Unpaid household services – share of GDP Many countries have produced estimates of unpaid household services The ratio of unpaid household services to GDP vary between countries and also within a country depending on the valuation method applied – an estimate of about 50% of GDP is not uncommon – the estimates can vary significantly within a country depending on whether a housekeeper replacement wage or opportunity cost is used in the valuation – the housekeeper method provides a lower end estimate, with most estimates being between 30% and 50% of GDP – the opportunity cost method results in the highest value, with most estimates being between 45% and 60% of GDP 17

Copyright 2010, The World Bank Group. All Rights Reserved. References 2008 Tourism Satellite Account: Recommended Methodological Framework System of National Accounts, 2008 A System of Health Accounts Integrated Environmental and Economic Accounting 2003 What is a Household’s Non-Market Production Worth? 18