The following terms will be used throughout the publication with a more detailed description of the terminology used to be found in the Appendix.
Capital input is the flow of capital services multiplied by the two-period average of the capital share of GVA. This publication terms capital input as capital services in charts for clarity.
Capital Intensity and Capital Deepening
Capital intensity is capital services per hour worked. Capital deepening is the growth in capital services per hour worked.
The efficiency at which capital services are utilized in producing output of goods and services, measured as output produced per unit of capital services input.
The flow of services derived from physical assets and intellectual property used to produce output. It is calculated by multiplying the user cost of the assets (this is the price of the capital service or the rental price of a capital good) by the capital stock.
Capital Stock and Productive Stock
Capital stock refers to the amount of capital in the economy. The productive stock is the net constant capital stock.
The capital share is the opposite of the labour share and is the part of national income attributed to capital.
Values that have been adjusted to remove the effects of price changes over time, therefore, allowing for meaningful comparison of values from different time periods.
The market value of an item in the period being measured that has not been adjusted to remove the effects of inflation over time.
Domestic and Other Sector
This refers to all sectors not categorised as Foreign sector (see definition of Foreign sector below).
These sectors dominated by foreign MNEs include the following: Chemicals and Chemical Products (NACE 20), Software and Communications (NACE 58-63), Reproduction of recorded media, Pharmaceutical products, Electrical equipment and Medical supplies (NACE 18.2, 21, 26, 27, and 32.5).
Gross output is a measure of total output in an economy, without deducting intermediate inputs. In other words, it is the total value of goods and services produced in an economy in a given period. Gross output can be calculated as GVA plus intermediate inputs.
Gross Value Added (GVA)
GVA is the difference between the value of goods and services produced and the cost of raw materials and other inputs that are used up in the production process. It is closely related to GDP and excludes taxes and subsidies on products and production.
Intermediate inputs are the value of goods and services used as inputs to the production process. The intermediate inputs can be broken down into three categories- Energy, Materials and Services. The breakout can proof useful in looking at the impact of changes in inputs on output growth.
KLEMS (stands for Capital, Labour, Energy, Materials and Services) provides a more detailed statistical decomposition on the inputs, which include capital, labour, energy, materials and services that contribute to output growth and production efficiency. This helps policy makers and economists to identify factors associated with economic growth and allows for a more disaggregated analysis of aggregate and industry productivity growth, such as changes in the relative importance of input components over time periods. Under the KLEMS framework, gross output can be broken down into the contributions from Labour, Capital and Multi-factor productivity, as well as contributions from intermediate inputs. The intermediate inputs can be broken down into contributions from Energy, Materials and Services.
Within intermediate inputs, the classification into energy (E), materials (M) and services (S) is beneficial in that they have distinctively different roles in the production process. This helps in evaluating trends in the way industries interact.
This is viewed as a measure of labour quality in the workforce. Labour Composition can be calculated as the difference between QALI and the growth in hours worked. Increases in labour composition are typically associated with low skilled workers leaving the workforce or high quality workers joining the workforce. Decreases in labour composition, on the other hand, are a sign that the economy may be struggling to recruit high skilled individuals. Further information can be found in the appendix.
Labour Compensation per Employee
Labour compensation per employee is defined as compensation of employees in national currency divided by the number of employees. Labour compensation of employed persons is the sum of gross wages and salaries and of employers' social security contributions.
Labour Compensation per Hour Worked
Labour compensation per hour worked is defined as compensation of employees in national currency divided by total hours worked by employees. Compensation of employees is the sum of gross wages and salaries and employers' social security contributions.
Labour input is the change in hours worked multiplied by the two-period average of the labour share of GVA. Hours worked include the hours worked by employees and self -employed.
Labour Productivity measures output in the economy relative to hours worked. It is calculated as Gross Value Added divided by hours worked.
The labour share is defined as the proportion of GVA growth attributed to labour with the remainder being attributed to capital. The labour share reflects the proportion of national income received by workers in the form of wages and salaries. A falling labour share often reflects an increase in the return to capital.
The Market sector includes all industries except Real Estate (L), Public Administration and Defence (O), Education (P) and Human Health and Social Work (Q).
Multi- factor productivity
Multi-factor productivity (MFP) reflects the overall efficiency with which labour and capital inputs are used together in the production process. Changes in MFP reflect the effects of changes in management practices, brand names, organizational change, general knowledge, network effects, spill overs from production factors, adjustment costs, economies of scale, the effects of imperfect competition and measurement errors. Growth in MFP is measured as a residual, i.e. that part of GDP growth that cannot be explained by changes in labour and capital inputs. In simple terms, if labour and capital inputs remained unchanged between two periods, any changes in output would reflect changes in MFP. This indicator is measured as an index and in annual growth rates.
Nominal unit labour cost
Nominal unit labour cost (ULC) measures hourly employee compensation relative to real labour productivity. Growth in an economy’s unit labour cost suggests that the cost of labour in the economy is rising relative to labour productivity, decreasing competitiveness. On the other hand, a decline in unit labour cost suggests that the cost of labour is declining relative to labour productivity, increasing competitiveness.
The non-market sector includes the sectors of Public Administration, Education and Human Health (sectors O to Q), as well as the Real Estate sector (NACE code L). As the measurement of GVA in the non-market sector is based on the sum of the costs incurred, it means that comparisons between the market and non-market sector are not particularly valid.
Note on Aggregation of Sectors:
Due to the change from NACE Rev.1 to NACE Rev.2 arising from the ESA standards in 2010, Manufacturing excludes NACE Rev.2 Code (18) and includes NACE Rev.2 Code (95), while the Information and Communications sector includes NACE Rev.2 Code (18). The sector Other Service Activities excludes NACE Rev.2 Code 95. More details can be found in the appendix. The bridging table is available on request.
Note on the availability of the data used:
All data used in the publication refers to the National Income and Expenditure data from 2018. The data can be accessed here: National Income and Expenditure 2018 Tables 1-22 and Annex 1 for 1995-2018 (XLS 396KB)
Quality adjusted labour input (QALI) weights hours worked of different types of workers by their earnings (their contribution to economic growth). QALI is calculated by weighting hours worked by earnings of workers broken down by age, sex and education level. Therefore, the QALI index will be more sensitive to changes in the hours worked of high productivity workers compared with low productivity workers. More details on the methodology can be found in the appendix.