OECD iLibrary: Statistics / National Accounts at a Glance / 2011 / Value added

National Accounts at a Glance 2011

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14. Value added

Value added reflects the contribution of labour and capital to production. It can be shown by: type of enterprise/establishment (activity, size, market/non-market, age, etc.); type of product, and institutional sector; and combinations of these, and is a key variable in economic analyses such as productivity and structural analysis.

Definition

Value added at basic prices can be simply defined as the difference between gross output (at basic prices) and intermediate consumption (at purchasers prices) and can be decomposed into the following components: Compensation of employees; Gross operating surplus; Mixed income; and Other taxes on production less Subsidies on production. It can also be derived as the difference between GDP (at market prices) and taxes on products less subsidies on products.

The SNA recommends the basic price valuation for value added but it can also be measured on different price bases such as producers prices and at factor cost.

One of the major advantages of value added is that it avoids problems inherent in the measurement of output which is a gross concept - gross in the sense that it counts the output of all production units. Countries with fragmented production networks therefore will have, all other things equal, higher output than those with more consolidated networks, complicating international comparisons. Indeed this is also a temporal problem as production networks can become more or less consolidated (through outsourcing for example) within a country from one year to another. Indeed production networks have become increasingly globalised in recent years, further affecting temporal and cross-country comparability.

Value added avoids these problems by measuring the value that a resident unit adds to that of the resident units that supply its inputs.

Like its GDP counterpart, value added can also be measured on a net basis, where the "net" refers to net of depreciation.

Like its nominal counterpart, real value added can be derived as the difference between real output and real intermediate consumption, an approach known as double-deflation.

A useful additional comment worth making in the context of value added concerns non-market output. By convention, because market prices are not observable, non-market output is calculated on a sum of costs approach with value added set equal to depreciation only and no net return to capital imputed.

Comparability

Not all countries produce value added on the basis of basic prices.

The tables and figures showing breakdowns by activity are based on the ISIC Rev. 3 industrial classification system. Countries generally collect information using their own industrial classification systems. The conversion from a national classification system to ISIC may create some comparability issues. For example, for Japan, Hotels (which form approximately 2.8-3.0% of value added) are included in Other services not wholesale, retail, etc. That said, at the 6 activity level presented here, for most countries the sectors are generally comparable.

Japan uses approximately market prices. New Zealand uses producer prices, and Iceland and the USA use factor costs.

Source

OECD (2011), National Accounts of OECD Countries, Vol. 2011/1, OECD Publishing http://dx.doi.org/10.1787/na-v2011-1-en.

Online database

OECD (2011), "Aggregate National Accounts: Gross domestic product" , OECD National Accounts Statistics (database), http://dx.doi.org/10.1787/data-00001-en.
OECD (2011), "Detailed National Accounts: Value added and its components by activity" , OECD National Accounts Statistics (database), http://dx.doi.org/10.1787/data-00006-en.

Definition

Comparability

Source

Online database

Further reading