Measuring productivity in services tends to be more challenging than measuring productivity in goods production. However, as the service sector now accounts for over 70% of OECD aggregate GDP and employment, and continues to grow, it is increasingly important to understand the impact of different services sectors on aggregate productivity.
For each service sector, labour productivity growth is calculated as the difference between the rate of growth of value added and the rate of growth of total employment (number of persons engaged).
Measuring output and productivity growth in many services is not straightforward. What exactly does a lawyer or economist produce? How can the changing pricing schemes of telecommunications providers be compared over time? And how should one measure the "quantity" of health services provided by hospitals? These and similar questions arise when statisticians attempt to measure the output of service industries and the difficulty of this task is hard to overstate.
Generally, it is more difficult for services than for goods to separate changes in volumes and prices. Characteristics of goods can normally be identified and changes in quantities and qualities are, in principle, measurable. However for services, even quantitative changes are often hard to measure, let alone quality change.
"Market services" here refers to ISIC Rev.3 service activities 50 to 74. In other words, it is an activity based proxy and excludes those industries that tend to be dominated by non-market production such as health, education and community and social services. Note that no adjustments have been made to remove estimates of household rentals (actual and imputed), which has no labour input associated, from value added - current practice when calculating labour productivity by major economic activity in OECD's System of Unit Labour Costs (ULC) Indicators. Also, since the ULC data set uses hours worked, rather than persons engaged, as a measure of labour input wherever possible, estimates of productivity growth of market services here may differ from those presented in the section focussing on ULCs.
In the charts, for Japan, total market services do not include hotels and restaurants (ISIC 55) and data refer to 1996-2000 instead of 1995-2000; 2000-2004 is used instead of 2000-2005 for Canada, Portugal and Sweden; 2001-2005 for Poland.
Several OECD countries experienced reduced growth in total market service labour productivity during the period 2000-05 compared to 1995-2000. The most notable falls occurred in Mexico, Portugal, the Slovak Republic and Switzerland. Countries that experienced a marked increase included Belgium, the Czech Republic, Hungary, Ireland and Japan. Productivity growth in market services continued to be very small in Italy and Spain.
The variation across services sectors and across countries is considerable. The services sectors with the highest rate of productivity growth tend to be those that invest more in ICT and have more highly skilled workforces. Sometimes labeled "Knowledge-intensive services" , these include industries such as post and telecommunications (ISIC 64); finance and insurance; and certain other business services such as computer services (ISIC 72).
Labour productivity in the hotels and restaurants sector seems to have declined considerably across OECD countries with few exceptions. However, the steep falls are partly due to the effect of using persons employed as a measure of labour input rather than hours worked - there are significant numbers of part-time workers in this sector. For most of those countries where hours worked data are available, estimated productivity still declines but to a lesser degree. It is also worth noting that any increase in the quality of output may not be captured in such services.