Scottish Government

Improve Productivity

DESCRIPTION:

Labour productivity (whole economy output per hour worked) is an internationally recognised and comparable indicator of competitiveness. The Scottish Government has a Purpose Target to rank in the top quartile for productivity against our key partners in the OECD by 2017.

Progress against the purpose target is indicated by measuring Scotland’s nominal (current price) level of productivity relative to OECD member states, at Purchasing Power Parity, and then calculating a ranked list based on the latest data. A rank of 9^th (of 36) or better is required for Scotland to be in the top quartile.

The supplementary indicator is based on the latest annual growth in Scotland’s labour productivity in real terms (constant prices). This measure does not include the impacts of price inflation and currency exchange rates which influence the relative productivity levels between countries when measured using Purchasing Power Parity, and therefore focusses on the underlying movement in productivity in Scotland. 

SOURCE:

Data for Scotland is derived from the Scottish Government’s Labour Productivity and Quarterly National Accounts Scotland statistics releases. These allow estimates of nominal (current price) GDP per hour worked to be calculated at current prices in pounds sterling.

Data for OECD members is taken from the Productivity Statistics Portal section of the OECD web site (http://www.oecd.org/std/productivity-stats/). The data set used is annual GDP per hour worked at current prices and Purchasing Power Parities (US Dollars PPP).

The measure of GDP per hour worked differs slightly from the headline measure of GVA per hour worked reported in UK and Scottish Labour Productivity statistics, but is required for international comparisons. The Purchasing Power Parity exchange rate for the UK (including Scotland) is sourced from the OECD statistics portal and used to convert the Scottish results into current prices and Purchasing Power Parities (US Dollars PPP) comparable with the OECD data.

The supplementary indicator uses the real terms index of output per hour worked published in the Scottish Government Labour Productivity statistics. This measure is commonly used as the headline indicator of productivity growth.

DEFINITIONS:

Labour productivity - defined as Gross Domestic Product (GDP) per hour worked - measures the average amount of goods and services produced for each hour worked by the labour force. Labour productivity can be measured for individual branches or companies, for industrial sectors or for the whole economy. The most productive economies can produce higher levels of output, on average, for each hour worked.

Gross domestic product (GDP) is a measure of economic activity which captures the value of goods and services produced within a country during a given period. GDP can be expressed in nominal or real terms. Nominal GDP reflects the value of all the goods and services produced during a given period, using their price at the time of production. Real GDP also reflects the value of produced goods and services, but it uses constant consumer and producer price indices to remove the effects of rising price levels (inflation).

Comparability across countries is achieved by using estimates of GDP and labour inputs from a common source (the OECD) and by converting local currency based measures of GDP using purchasing power parity (PPP) exchange rates. PPP exchange rates (usually referred to simply as PPPs) attempt to equalise the cost of a representative basket of goods and services in countries with different national currencies.

Nominal (current price) measures of productivity are suitable for cross-country comparisons of the level of productivity in a single year. Current price productivity estimates are indexed to USA=100 for each year, and show each country’s productivity relative to that of the USA in that year. In interpreting these estimates users should bear in mind that PPPs provide only an approximate conversion from national currencies and may not fully reflect national differences in the composition of a representative basket of goods and services. Additionally, care should be taken in interpreting movements in current price productivity estimates over time. For example, an increase in Scottish productivity relative to another country could be due to Scottish productivity growing faster, or falling less, or due to changes in relative prices or exchange rates between the two countries, or some combination of these movements.

Real terms (constant price) measures of productivity are suitable for measuring within-country changes in productivity over time, or for comparing growth rates between countries. Constant price productivity estimates are indexed to 2007 in order to focus on movements in labour productivity since the onset of the recession in 2008. The index values of constant price productivity should not be used to compare productivity across countries at a point in time. Productivity growth can be decomposed into growth of output minus the growth of labour input, and these components can move in different directions within and across countries.

Estimates of total hours worked in Scotland during a given period are based on responses to the Annual Population Survey for actual hours worked, and derived as part of the ONS Regional Productivity estimates for NUTS1 areas of the UK.

BASELINE AND PAST TRENDS:

Purpose Target:

The baseline year for the purpose target is 2006 (calendar year). The baseline rank is 18.

 Supplementary Information:

The index of real terms productivity is published with a reference baseline of 2007=100 to assist with analysis over the period of the recession and recovery beginning in 2008.         

CRITERIA FOR RECENT CHANGE ARROW:

Purpose Target:

The evaluation is based on any change in Scotland’s rank among the OECD members. An increase in the rank indicates that performance is improving; whereas a decrease in the rank indicates that performance is worsening.

Supplementary Information:

The evaluation is based on the annual (year on year) percentage change in Scotland’s real terms productivity index. A change of at least +/- 0.1% indicates that performance is improving or worsening. An increase of less than +/- 0.1% indicates no significant change and that performance is maintaining.

For information on general methodological approach, please click here.

FUTURE ISSUES OR REVIEWS:

Estimates of GDP are produced using a range of data sources including monthly and quarterly turnover; published data sources (e.g. on employment levels or activity levels in certain industries); and data received directly from companies and other organisations. These data sources are in a constant state of development. As a result data sources and methods used in the measurement of GDP and other economic statistics will at times need to be revised.

Revisions are also regularly made to the OECD data series. These revisions can reflect revisions to each country’s GDP estimates in their national currency, but are also due to methodology and conceptual updates applied internationally. For example, updates in the OECD’s Purchasing Power Parity (PPP) benchmarking exercise, the implementation of the new European industrial classification system NACE Rev.2 by European countries into their national accounts, and the implementation of significant changes driven by the adoption of the System of National Accounts 2008 and European System of Accounts 2010.

ASSOCIATED TARGET:

The Government Economic Strategy sets out an ambitious target for Scotland: To rank in the top quartile for productivity amongst our key trading partners in the OECD by 2017.

Further information can be found at: http://www.gov.scot/Topics/Economy/EconomicStrategy.