Improving measurement of public sector productivity

In the private sector, measuring productivity is relatively simple: the different outputs produced by a firm are weighted according to their price and then added to calculate an aggregated output measure. This measure is then divided by either labour inputs, to give labour productivity (LP), or by the total inputs involved, to give a total factor productivity ratio (TFP).

Accurate measures of the value generated  by public services are vital to understanding developed economies. However, measurement can be more of a challenge than in the private sector. This is because outputs are harder to define, and harder to measure, especially when they are provided free to users.

The 2005 Atkinson Review established nine principles for measuring public sector output that have stood the test of time. Since the Review’s publication, the ONS has applied these methods in its measures of public service productivity.  However, there is more work to be done and the landscape has changed in the last 18 years, especially due to the impact of the COVID-19 pandemic.

This ESCoE project forms part of ONS work to review public sector productivity measurement.

The project will review recent work on the measurement of public sector productivity by National Statistical Offices and academic researchers.  Current measurement of health output is in essence based on work done many years ago and does not reflect any new data which may have become available since. New data sources may provide useful tools to measure the outcomes of health interventions including preventative treatment.

We will review the available data to allow subsequent work to exploit them. The project will explore how we might measure ‘value for money’ metrics for the health sector, based on the pioneering work of David Cutler and associates for the US. This will be carried out in collaboration with researchers in the Netherlands, with the aim of producing a Dutch-UK comparison. As part of this project, Professor Ron Smith of Birkbeck College, an international expert in defence economics, is also investigating how far it is possible to measure changes in the quality of defence capability.

An April 2024 discussion paper from Ron Smith looked at the challenges of measuring defence output, inputs and productivity within the UK national accounts. This examined what should be measured and how we can measure the same thing across time and space.

Smith concluded that there may be no practical way to overcome these challenges and provide a measure that meets the Atkinson principles for the measurement of government output and productivity. These include that corroborative evidence should be sought on government productivity, as part of a process of “triangulation” and that explicit reference should be made to the margins of error surrounding national accounts estimates.

In work which is close to completion, Martin Weale has shown how the benefits of lifestyle classes offered to people with pre-diabetes can be included in measures of public sector output. While this work suggests only a small impact of classes on aggregate measures of output, it also provides a framework for a more general assessment of preventative medicine.

This project will feed into the ONS overview of productivity in the public services, providing detailed proposals and research into the headline questions. These can then be pursued by ONS to inform redevelopment of this suite of statistics.

Beyond ONS, the work should have a wide impact, with direct benefits to HMT and policy makers.

The research will be developed with key stakeholders in other government departments to gain buy-in for the productivity measures. It will also be used as supporting evidence for further research and investment.

We will share the findings with the international statistics community to improve measures of National Accounts and Public Service Productivity.

ESCoE Conference on Economic Measurement 2024 presentation: Special session D: Martin Weale ‘Public health measures and the National Accounts: Effects of the diabetes prevention programme’.

ESCoE Conference on Economic Measurement 2024 presentation: Contributed session E: Martin Weale ‘Public health measures and the National Accounts: the effects of the diabetes prevention programme’

Smith, R.P. ‘Issues in measuring defence output: A review’ ESCoE Discussion Paper Series, ESCoE DP 2024-04.

Smith, R. P. ‘Challenges of measuring defence output’ ESCoE Blog, 30 April 2024.

Mizen, P. ‘Measuring public sector productivity – Paul Mizen reflects’ 25 April 2024.

‘Measuring public sector productivity’ with Joe Grice (ESCoE and King’s Business School), Richard Heys (ONS), Mary O’Mahony (ESCoE and King’s Business School) ESCoE Economic Measurement Series, 9 April 2024.