1. © Copyright IBM Corporation 2007 Disclaimer (Optional location for any required disclaimer copy. To set disclaimer, or delete, go to View | Master | Slide Master) IBM Institute for Business Value IBM Global Business Services Estimates of Labour Productivity in Wholesale and Retail Trade: 2002-2005 Dr. Mary Keeling, Global Centre for Economic Development Research, IBM Institute for Business Value Dr. Rita Buckley, Department of Economics, Kemmy Business School, University of Limerick CSO Business Statistics Seminar, 26 th February 2008

2. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 20082 Empirical estimates of productivity in wholesale and retail trade in Ireland:2002-2005  Why examine labour productivity in wholesale and retail trade?  How we measure productivity in wholesale and retail trade  Questions we are interested in answering 1. Within wholesale and retail trade, how have individual sub sectors performed over the 2002-05 period? 2. How does productivity vary according to firm size? 3. How does productivity vary for family vs non-family owned firms? 4. How does productivity vary for foreign vs domestically owned firms? Contents OR Agenda

3. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 20083 Wholesale and retail trade account for the majority of employment in services

4. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 20084 They also account for a significant proportion of total enterprises in services

5. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 20085 Data requirements for measurement of productivity Nominal Output Prices Real Output Inputs Productivity Productivity = real output per unit of input Labour Productivity :  The most extensively developed and widely used productivity measure because of its relevance to economic analyses and because, as a practical matter, labour is the most easily measured input

6. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 20086 How should output be measured in wholesale and retail trade?  Caution must be exercised when using value added figures especially for non-tradable services as - there are significant measurement issues that arise from the use of the value added method in relation to non-tradable services (Forfas, 2006)  Value added conceptually less appropriate for estimating productivity - Output and purchased intermediate input data are more suitable for industry productivity analysis (Triplett and Bosworth, 2003) - There is a general shift away from emphasis on value added for output and productivity measurement in services (Bosworth, 2005)

7. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 20087 How we measure the volume of output in wholesale and retail trade Volume of sales Volume of margin output  The main part of the output consists of wholesale and retail trade margins  The most widely used method of estimating the volume of margin output is to assume that the volume of margins follows the volume of sales  The volume of sales is obtained by deflating sales by a sales price index  For retail trade, this should be an index of retail sales prices, e.g. a CPI.  For wholesale trade, the appropriate index would be a wholesale price index  This is considered by Eurostat (2001) as an acceptable alternative (B) to the ideal method (A)  Any other methods, in particular the deflation of margin output or VA directly by a sales price index, are classified by Eurostat (2001) as ‘C’ methods.  Currently there are no estimates using ideal (A) or acceptable alternative (B) methods for Ireland Volume of margin output

8. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 20088 For wholesale trade, relative productivity levels indicated by the Sales and VA measures of productivity are not always consistent

9. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 20089 These inconsistencies are also evident for retail trade

10. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200810 There is even greater variance between the two measures for productivity growth in wholesale trade

11. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200811 …. As well as for retail trade

12. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200812 ‘Wholesale of food, beverages and tobacco’ is the most important sector in terms of employment and enterprise within wholesale trade

13. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200813 While retail sales in non-specialised stores accounts for the majority of employment, other retail sale of new goods in specialised stores accounts for most enterprises

14. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200814 Within wholesale trade, sales volume indicates that the sector with the highest productivity level has not been constant between 2002- 05

15. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200815 Whereas within retail trade, ‘Retail sale not in stores’ has consistently had the highest productivity level between 2002-05

16. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200816 ‘Wholesale of machinery, equipment and supplies’ had the highest productivity growth over the 2002-2005 period

17. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200817 ‘Retail sales in non-specialised stores’ had the highest productivity growth rate for the 2002-2005 period

18. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200818 Larger firms account for the marjority of employment and small firms account for the majority of enterprises in wholesale and retail trade

19. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200819 In wholesale trade, larger firms generally also have higher productivity levels, while for retail trade, smaller firms have higher productivity levels

20. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200820 But the highest productivity growth between 2002-05 was in smaller firms in wholesale trade and firms employing 10-19 persons in retail trade

21. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200821 Non-family owned firms account for the majority of enterprises and employment in wholesale trade, but family owned firms are relatively more important in retail trade

22. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200822 While non-family owned firms had the highest productivity levels in both wholesale and retail trade, family owned firms in both wholesale had higher productivity growth

23. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200823 Irish owned firms account for the majority of employment and enterprises in both wholesale and retail trade

24. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200824 But foreign firms had higher productivity levels and growth between 2002-05

25. © Copyright IBM Corporation 2007 IBM Global Business Services CSO Business Statistics Seminar | 26 th February 200825 So what have we learned?  Sales and VA measures of productivity are not always consistent in indicating the sectors within wholesale and retail trade that are the most productive, or where productivity is increasing the most  Firm size matters for productivity levels and growth - In wholesale trade, larger firms generally have higher productivity levels, while for retail trade, smaller firms have higher productivity levels  Family ownership matters for productivity levels and growth - While non-family owned firms had the highest productivity levels in both wholesale and retail trade, family owned firms in both wholesale had higher productivity growth  Foreign ownership matters for productivity levels and growth - Foreign firms had higher productivity levels and growth between 2002-05  Next steps - Interaction between firms size, family ownership, foreign ownership, exporting - Analyse the contribution of each sub-sector within wholesale and retail trade to productivity growth - Set out the implications of the results for differentiating and targeting public policy