1. Agenda item 6d
Exhaustiveness of national accounts Non-observed economy and Informal sector
Workshop on Implementation of the 2008 SNA
Kiev, 29 November - 2 December 2011
Presentation by UNECE

2. Objective and Definition
All activities within the SNA production boundary should be included
Non-observed economy refers to all productive activities that may not be captured in the regular statistical enquiries, that is, activities that are not directly observed.
The aim is to make national accounts exhaustive (quality aspects).
Statistics are impartial - from NA perspective not important whether what is produced are “goods” or “bads”, whether produced legally/illegally, by registered/unregistered enterprises etc.
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3. Exhaustive Measurement issues
Lack of coverage causes problems for users both in terms of levels and trends
Levels
GDP and other data downward biased – inaccurate impression of economy
Great significance in situations - monetary contributions made/received by a country depend on its GDP or when poverty is measured by GDP per head etc.
Trends
Biases in trend estimates can be expected if the economic activities missing from GDP grow at different rates from those included
For National Accountants, lack of coverage causes imbalances in the internal consistency of the accounts
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4. Exhaustiveness in the 2008 SNA
It is not an issue only for developing countries, although it affects measurement of production in these countries more.
Chapter 25 in the 2008 SNA – Informal aspects of the economy
Ensure all activities (incl. hidden and underground) are encompassed in measures of total,
Define and measure Informal activities.
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5. Non-observed economy and Informal Sector
Not observed, not informal
Observed, informal
Not observed, informal
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6. Conceptual framework The 2008 SNA
Measuring the Non-Observed Economy. Handbook (2002) – jointly prepared by OECD, IMF, ILO and CISSTAT
ILO 15th ICLS, Delhi Group on Informal Sector
Eurostat Pilot Projects on Exhaustiveness in 1998 and 2002 – Guidelines on Tabular Frameworks
UNECE surveys on country practices in measuring the NOE (1993, 2002, 2005/06)
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7. Non-Observed economy
Measuring the Non-Observed Economy. Handbook (2002)
- in Russian
5 problem areas:
Underground production
Illegal production
Informal sector production
Household production for own final use
Deficiencies in data collection
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8. Informal Sector: ICLS & SNA differences
1)Typology of production units
part of SNA households and household enterprises as market producers belongs to ICLS formal sector (meaning of sector different from SNA)
2) Segmenting the economy
Informal own account enterprises and enterprises of informal employers
Criterion of non-registration in many countries does not coincide with lack of legal entity and complete set of accounts
3) Criterion of market producers – ‘some or all’ vs. ‘most or all’
4) Special cases: ICLS excludes owner-occupied dwellings, services for own final use by paid domestic staff, treats separately agricultural and non-agricultural activities.
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9. Eurostat tabular approach
Developed for the projects on Exhaustiveness of National Accounts with EU Candidate Countries
First project (1998 – 2000): Tabular approach T1 –T8;
Second Project (2002 – 2003): refined Tabular approach to exhaustiveness N1 – N7
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10. Eurostat tabular approach
Defines standard set of non-exhaustiveness types (N1 to N7) and presents them in a tabular framework;
Provides a comprehensive and systematic assessment to ensure exhaustiveness of NA;
Facilitates cross-country comparisons of adjustments and adjustment methods and provides for similar level of coverage of NA.
However, the distinction between the N-types is important but it is not the main goal;
Main goal: produce accurate NA and GDP estimates.
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11. Total economy (all activities of all producers)
Covered by enterprise surveys
Yes No
Not -surveyed
Surveyed
Administrative registration?
Responding?
Yes No No
Yes
Not registered
Registered
Non-response incorrectly handled
N7a
Deliberately not registered N1
Not Required to Register N3
Legal person N4
Enterpre-neur N5
Not all data are available
N7b
Misreporting N6
Illegal producer N2
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12. Measurement of Non-Observed economy
Measurement of NOE involves action on two fronts:
Improvements in direct measurement by the data collection programme, resulting in fewer non-observed activities and hence fewer non-measured activities; and
Improvements in indirect measurement during compilation of the national accounts, resulting in fewer non-measured activities.
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13. Exhaustiveness – NA methods
Indirect methods of covering NOE in the GDP estimate:
Supply based approaches, including LIM;
Demand based approaches;
Income based approaches;
Commodity flow approaches.
Labour Input Method (LIM) is the most important procedure that has been used since 1950s to measure contribution of unorganised sector to GDP.
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14. Supply and use framework
commodity flow method at the level of the whole economy
breakdown of total output or sales by product for goods and services
data on exports and imports of goods and services.
estimates of the ratios of intermediate consumption to output for various industries.
total intermediate consumption by product,
final household consumption expenditure, gross fixed capital formation, and changes in inventories by product
balancing – removing inconsistencies for the benchmark year and subsequent years
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15. UNECE Surveys on country practices
1991: 9 countries
2001/02: 29 countries
2005/06: 43 countries
Inventory of current methods and practices in estimating NOE
Implications and effects on National Accounts
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16. UNECE Surveys on country practices
EU member countries - from ~ 1% to ~ 18.9% (from 6.6 to 18.9 among new EU members)
EECCA countries - from 10.7 % to 31.6%
SEE countries - from 8.8 % to 30.6 %
Turkey (1.7%); Mongolia (between 13.0% and 30.0%)
Armenia
2003
28.9
Moldova
2001
31.6
Azerbaijan
20.7
Russia
24.3
Belarus
10.7
Tajikistan
Year not stated 25
Georgia
2004
28.3
Turkmenistan
2005
18.1
Kazakhstan
21.6
Ukraine
17.2
Kyrgyzstan
17.0
Uzbekistan
29-30
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17. Problems in the countries of the region
Overall infrastructure
Large number of unregistered enterprises, irregular and individual activities, unregistered employed persons
High turnover of enterprises, changes in types of economic activities
Statistical infrastructure
Links between all administrative registers and the statistical business register
Use of exhaustive and updated business register as a base for all establishments surveys
Difficulties related to sample surveys
Difficult to check the reliability of reported data
Measuring illegal activities
Etc.
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18. Adjustments to NOE ActivitiesNR NS M O N1 N2 N3 N4 N5 N6 N7
Armenia V
Azerbaijan
Belarus
Kazakhstan
Kyrgyzstan
Republic of Moldova
Russian Federation
Tajikistan
Turkmenistan
Ukraine
Uzbekistan
Georgia
Mongolia
Albania
Montenegro
Serbia
Croatia
The FYR Macedonia
Turkey
Source: UNECE, 2008
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19. Improvement of basic data
Statistical data requirements
make known the requirements and data problems of GDP compilation to the branch statisticians
inform main users about the NOE problem areas
Institutional framework
legislation, access to administrative data, relation between confidentiality and non-response or misreporting
Conceptual framework of data collection
units, classifications
Data collection mechanisms
administrative sources, statistical business register, surveys
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20. Implementation strategy
Steps:
Formulate aims, consult internal and external users
Select an analytical framework
Assess NA and basic data collection programme
Identify and prioritise NOE improvements
Special features in transition countries:
priorities: underground, informal
analytical framework linked to priorities
introducing sample surveys
cooperation with other government agencies
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21. Issues for discussion
Is Eurostat tabular framework best fitted for NA for the region ?
Why large portion of units are still in non-observed, while registration is required ?
Use of better coordination with all administrative registers
Country experiences for measuring the NOE
Illegal, underground activities;
Own-account non-agricultural goods production solely for own final use
Statistical underground
Informal sector enterprises
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