Non-Market Services: What can we measure? Mary OMahony NIESR

Non-market services Define as services where all or most production is by the public sector (extent of private provision varies across countries, e.g. US health sector) Comprises health & social services, education, criminal justice, defense, public administration 20% employment EU-15; 25% US… and growing

Measurement – Developments traditional National accounts – traditionally outputs were measured by inputs Sector performance – providers need some measures to evaluate effectiveness of service delivery –Frequently used performance indicators, e.g. number of pupils reaching some education level, decreases in mortality rates from heart disease, number of street lights repaired within 48 hours –Problems – how to aggregate, mixing up outputs and outcomes

Measurement – Developments - Research Dissatisfaction with state of play - Alternative measures being pursued by statistical offices (Eurostat targets, 2006) Require measures that can be used both for national accounts and performance evaluation Past decade or so - researchers looking at performance measures, drawing from methods employed in private sector –Education – Jorgenson & Fraumeni –Health – US research, Berndt, Cutler, Griliches, Newhouse, Triplett –Some research input from National Statistical Offices, e.g. US Bureau of economic analysis, UK Office for National Statistics, Australian Bureau of Statistics, Statistics Netherlands. There exist plentiful data on quantities – main issue is to incorporate quality changes

Why are non-market services different 1. lack of prices 2. information asymmetries 3. some collective services 1.Is an issue for public provision; 2.is an issue for both public and private – information is in the hands of professionals, insurance markets, difficult to observe benefit to consumer 3.Probably will continue to measure outputs by inputs – difficult to define outputs independent of inputs Solution for 1 – use cost weighted activity indexes. Solution for 1 & 2 is to consider marginal impact of services on outcomes - life expectancy, QALYs, lifetime earnings

Illustrations: Research on non-market services EDUCATION BEA (Fraumeni et al.) – cost weighted pupil numbers (FTE) for schools, quality adjustments include teacher quality (labour compensation index), class size, high school dropouts, college enrollment Netherlands – pupil numbers, % foreign, pupils moving up ABS – third level, adjustment for cost of degree courses NIESR - US/UK comparison - marginal outcome is impact of education on market earnings – regression analysis to compute returns to education – increments to earnings from education used as weights for student numbers, includes university and further education

Illustrations: Research on non-market services HEALTH ONS – cost weighted activity index – new measure, about 1300 activities – replaced old index based on 16 categories – treated all in-patient activities the same – e.g. heart by-pass equals varicose vein procedure ABS similar index Productivity growth in the NHS (NIESR/Centre for Health Economics, University of York), activities (same as ONS), outcomes - increase in quality of life following treatment, waiting times, mortality rates – report due end August 2005

UK – CWAI for Health

Non-market services in EUKLEMS Statistical module Probably best to confine attention to cost weighted activity indexes National statistics offices engaged in research for Eurostat target – need to follow developments Quality adjustments – differ between countries – do we attempt to achieve consistency? Analytical module –Incorporate outcome information