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IBM Institute for Business Value

IBM Global Business Services

Estimates of Labour Productivity in Wholesale and Retail Trade:2002-2005

Dr. Mary Keeling, Global Centre for Economic Development Research, IBM Institute for Business ValueDr. Rita Buckley, Department of Economics, Kemmy Business School, University of Limerick

CSO Business Statistics Seminar, 26th February 2008



CSO Business Statistics Seminar | 26th February 20082

Empirical estimates of productivity in wholesale and retail trade in Ireland:2002-2005

Why examine labour productivity in wholesale and retail trade?

How we measure productivity in wholesale and retail trade

Questions we are interested in answering

1. Within wholesale and retail trade, how have individual sub sectors performed over the 2002-05 period?

2. How does productivity vary according to firm size?

3. How does productivity vary for family vs non-family owned firms?

4. How does productivity vary for foreign vs domestically owned firms?

Contents OR Agenda




Wholesale and retail trade account for the majority of employment in services

38.8 38.3 37.9 38.6

18.8 18.7 18.1 17.5

12.6 12.6 12.5 11.9

24.2 24.2 25.2 25.7

5.5 6.3 6.3 6.2

0%

20%

40%

60%

80%

100%

2002 2003 2004 2005

Other community, social andpersonal services activities

Real estate renting

Transport, storage andcommunications

Hotels and restaurants

Wholesale and retail distribution




They also account for a significant proportion of total enterprises in services

38.3 37.3 36.1 34.8

15.4 14.8 13.2 12.4

7.6 8.1 8.1 7.8

30.0 32.0 34.8 37.2

8.7 7.8 7.7 7.7

0%

20%

40%

60%

80%

100%

2002 2003 2004 2005

Other community, social andpersonal services activities

Real estate renting

Transport, storage andcommunications

Hotels and restaurants

Wholesale and retail distribution




Data requirements for measurement of productivity

Nominal Output

Prices Real Output Inputs Productivity

Productivity = real output per unit of input

Labour Productivity : The most extensively developed and widely used productivity measure because of its relevance to economic analyses and because, as a practical matter, labour is the most easily measured input




How should output be measured in wholesale and retail trade?

Caution must be exercised when using value added figures especially for non-tradable services as - there are significant measurement issues that arise from the use of the

value added method in relation to non-tradable services (Forfas, 2006)

Value added conceptually less appropriate for estimating productivity - Output and purchased intermediate input data are more suitable for

industry productivity analysis (Triplett and Bosworth, 2003)

- There is a general shift away from emphasis on value added for output and productivity measurement in services (Bosworth, 2005)




How we measure the volume of output in wholesale and retail trade

Volume of sales

Volume of margin output

The main part of the output consists of wholesale and retail trade marginsThe most widely used method of estimating the volume of margin output is to assume that the volume of margins follows the volume of sales

The volume of sales is obtained by deflating sales by a sales price indexFor retail trade, this should be an index of retail sales prices, e.g. a CPI. For wholesale trade, the appropriate index would be a wholesale price indexThis is considered by Eurostat (2001) as an acceptable alternative (B) to the ideal method (A)

Any other methods, in particular the deflation of margin output or VA directly by a sales price index, are classified by Eurostat (2001) as ‘C’ methods.

Currently there are no estimates using ideal (A) or acceptable alternative (B) methods for Ireland

Volume of margin output




For wholesale trade, relative productivity levels indicated by the Sales and VA measures of productivity are not always consistent

Sales VA Sales VA Sales VA Sales VANACE Rev.1.1 Principal Activity 2002 2002 2003 2003 2004 2004 2005 2005

51.1+51.2

Wholesale on a fee or contract

basis5 5 5 6 6 6 5 6

51.3Wholesale of

food, beverages and tobacco

2 2 2 2 1 1 3 2

51.4Wholesale of

household goods4 1 3 3 4 3 4 4

51.5

Wholesale of non-agricultural

intermediate products, waste

& scrap

1 3 1 1 2 2 2 3

51.8

Wholesale of machinery,

equipment and supplies

3 6 4 4 3 5 1 1

51.9 Other wholesale 6 4 6 5 5 4 6 5




These inconsistencies are also evident for retail trade

NACE Rev.1.1 Principal Activity 2002 2002 2003 2003 2004 2004 2005 2005

52.1Retail sale in non-

specialised stores

3 4 3 3 3 3 3 4

52.2

Retail sale of food, beverages and tobacco in

specialised stores

5 6 5 5 5 7 5 6

52.3

Retail sale of pharmaceutical

and medical goods, cosmetic and toilet articles

2 2 2 2 2 2 2 1

52.4

Other retail sale of new goods in

specialised stores

4 3 4 4 4 4 4 3

52.5Retail sale of second-hand

goods in stores6 7 6 7 6 6 6 7

52.6Retail sale not in

stores1 1 1 1 1 1 1 2

52.7Repair of

personal and household goods

7 5 7 6 7 5 7 5




There is even greater variance between the two measures for productivity growth in wholesale trade

NACE Rev.1.1 Principal Activity Sales VA Sales VA Sales VA Sales VA

51.1+51.2


basis3 4 6 6 2 3 5 6

51.3Wholesale of


2 3 1 1 6 6 4 2

51.4Wholesale of

household goods4 6 4 3 4 4 3 5

51.5



& scrap

1 2 5 5 3 5 2 3

51.8



5 1 2 4 1 1 1 1

51.9 Other wholesale 6 5 3 2 5 2 6 4

2002-20052004-052003-042002-03




…. As well as for retail trade

NACE Rev.1.1 Principal Activity Sales VA Sales VA Sales VA Sales VA


specialised stores

5 1 4 5 1 5 1 3

52.2


specialised stores

4 5 5 6 4 1 5 1

52.3



2 2 7 7 5 4 7 6

52.4


specialised stores

3 4 6 4 2 2 3 4


goods in stores6 3 3 3 3 6 2 5


stores1 6 2 1 7 7 4 7

52.7Repair of


7 7 1 2 6 3 6 2




‘Wholesale of food, beverages and tobacco’ is the most important sector in terms of employment and enterprise within wholesale trade

NACE Rev.1.1 Principal Activity2002 2003 2004 2005 2002 2003 2004 2005

51.1+51.2 Wholesale on a fee or contract basis, Wholesale of agricultural raw materials and live animals

8.9 15.1 11.1 9.5 17.2 19.7 20.5 21.8

51.3 Wholesale of food, beverages and tobacco

26.7 25.4 25.3 25.9 21.7 22.1 22.7 22.5

51.4 Wholesale of household goods

19.7 17.1 17.2 17.7 17.0 16.7 17.0 16.8

51.5 Wholesale of non-agricultural intermediate products, waste and scrap

19.7 19.5 21.7 22.2 16.5 16.0 16.0 16.6

51.8 Wholesale of machinery, equipment and supplies

17.6 14.8 16.1 16.8 15.3 13.4 12.9 12.3

51.9 Other wholesale 7.4 8.1 8.5 7.7 12.3 12.0 10.9 10.0Total 100 100 100 100 100 100 100 100

Number of Persons Engaged Number of Enterprises




While retail sales in non-specialised stores accounts for the majority of employment, other retail sale of new goods in specialised stores accounts for most enterprises

NACE Rev.1.1 Principal Activity2002 2003 2004 2005 2002 2003 2004 2005

52.1 Retail sale in non-specialised stores

47.9 45.8 45.2 46.3 24.2 23.3 22.9 19.8

52.2 Retail sale of food, beverages and tobacco in specialised stores

6.3 6.9 6.7 5.8 12.4 12.2 12.3 11.8

52.3 Retail sale of pharmaceutical and medical goods, cosmetic and toilet articles

5.3 5.6 6.0 6.1 5.3 5.4 5.6 5.9

52.4 Other retail sale of new goods in specialised stores 38.0 38.3 39.1 39.3 50.8 51.4 51.1 54.0

52.5 Retail sale of second-hand goods in stores

0.5 0.6 0.6 0.3 1.6 1.4 1.7 1.0

52.6 Retail sale not in stores 0.7 1.4 1.2 1.0 1.6 2.2 2.1 2.852.7 Repair of personal and

household goods1.3 1.3 1.2 1.1 4.1 4.1 4.4 4.7

100 100 100 100 100 100 100 100

Number of Persons Engaged Number of Enterprises




Within wholesale trade, sales volume indicates that the sector with the highest productivity level has not been constant between 2002-05

NACE Rev.1.1 Principal Activity 2002 2003 2004 2005

51.1+51.2Wholesale on a fee or contract

basis368339 401336 318199 436381

51.3Wholesale of


548684 614477 825943 715413

51.4Wholesale of

household goods466451 475186 542613 610740

51.5



& scrap

583018 714445 722408 975065

51.8



475075 465072 569434 998320

51.9 Other wholesale 328014 286766 343588 385483




Whereas within retail trade, ‘Retail sale not in stores’ has consistently had the highest productivity level between 2002-05

NACE Rev.1.1 Principal Activity 2002 2003 2004 2005


specialised stores

140635 138624 141926 156381

52.2


specialised stores

111993 111893 113712 112121

52.3



168708 181373 170670 162084

52.4


specialised stores

125457 128834 126373 132470


goods in stores64578 57309 69081 71218


stores217913 272974 375075 219438

52.7Repair of


50006 39788 54734 49832




‘Wholesale of machinery, equipment and supplies’ had the highest productivity growth over the 2002-2005 period

NACE Rev.1.1 Principal Activity 2002-03 2003-04 2004-05 2002-05

51.1+51.2


basis9.0 -20.7 37.1 18.5

51.3Wholesale of


12.0 34.4 -13.4 30.4

51.4Wholesale of

household goods

1.9 14.2 12.6 30.9

51.5



& scrap

22.5 1.1 35.0 67.2

51.8



-2.1 22.4 75.3 110.1

51.9 Other wholesale -12.6 19.8 12.2 17.5




‘Retail sales in non-specialised stores’ had the highest productivity growth rate for the 2002-2005 period

NACE Rev.1.1 Principal Activity 2002-03 2003-04 2004-05 2002-05

52.1Retail sale in

non-specialised stores

-1.4 2.4 10.2 11.2

52.2


specialised stores

-0.1 1.6 -1.4 0.1

52.3



7.5 -5.9 -5.0 -3.9

52.4


specialised stores

2.7 -1.9 4.8 5.6


goods in stores-11.3 20.5 3.1 10.3


stores25.3 37.4 -41.5 0.7

52.7

Repair of personal and

household goods

-20.4 37.6 -9.0 -0.3




Larger firms account for the marjority of employment and small firms account for the majority of enterprises in wholesale and retail trade

NACE Rev.1.1

Principal Activityand

Number of Persons Engaged2002 2003 2004 2005 2002 2003 2004 2005

51 1 - 9 Persons engaged 16.1 18.0 17.9 19.4 77.9 78.5 79.3 81.710 - 19 Persons engaged 11.9 14.4 14.1 11.1 10.3 11.7 10.8 8.320 - 49 Persons engaged 20.6 18.8 21.5 18.8 8.0 6.5 6.6 6.450 or more Persons engaged 51.4 48.8 46.5 50.6 3.9 3.4 3.2 3.6Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

52 1 - 9 Persons engaged 25.2 24.7 23.8 20.3 89.7 88.9 87.7 86.710 - 19 Persons engaged 10.0 11.9 12.4 11.4 5.7 6.5 7.4 7.820 - 49 Persons engaged 11.8 11.4 11.7 10.8 3.1 2.9 3.1 3.350 or more Persons engaged 53.0 52.0 52.1 57.6 1.4 1.6 1.8 2.2Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Total Numberof Employees

Total Number of Enterprises




In wholesale trade, larger firms generally also have higher productivity levels, while for retail trade, smaller firms have higher productivity levels

2002 2003 2004 200551 1 - 9 Persons

engaged415,592 428,866 450,970 673,601

10 - 19 Persons engaged

488,687 551,125 773,332 667,027


525,720 485,044 487,869 746,071

50 or more Persons engaged

574,073 645,226 771,662 832,560

Sub-total 528,456 562,667 653,359 766,9472002 2003 2004 2005

52 1 - 9 Persons engaged

185,080 180,902 178,402 186,414


129,289 126,813 125,356 134,091


132,331 117,153 125,049 117,910


146,651 156,049 149,928 150,087

Sub-total 152,926 154,294 150,746 152,159




But the highest productivity growth between 2002-05 was in smaller firms in wholesale trade and firms employing 10-19 persons in retail trade

2002-2003 2003-2004 2004-2005 2002-200551 1 - 9 Persons

engaged3.2 5.2 49.4 62.1


12.8 40.3 -13.7 36.5


-7.7 0.6 52.9 41.9


12.4 19.6 7.9 45.0

Sub-total 6.5 16.1 17.4 45.12002-2003 2003-2004 2004-2005 2002-2005

52 1 - 9 Persons engaged

-2.3 -1.4 4.5 0.7


-1.9 -1.1 7.0 3.7


-11.5 6.7 -5.7 -10.9


6.4 -3.9 0.1 2.3

Sub-total 0.9 -2.3 0.9 -0.5




Non-family owned firms account for the majority of enterprises and employment in wholesale trade, but family owned firms are relatively more important in retail trade

NACE Rev. 1.1

Nationality of

Ownership2004 2005 2004 2005

51 Family 48.4 48.4 35.1 40.6Non-Family 51.6 51.6 64.9 59.4Total 100.0 100.0 100.0 100.0

52 Family 60.1 56.1 55.2 50.2Non-Family 39.9 43.9 44.8 49.8Total 100.0 100.0 100.0 100.0

Number of Enterprises Employment




While non-family owned firms had the highest productivity levels in both wholesale and retail trade, family owned firms in both wholesale had higher productivity growth

Growth

NACE Rev. 1.1

Nationality of

Ownership2004 2005 2004-05

51 Family 383430 510571 33.2Non-Family 799383 942017 17.8Total 653368 766947 17.4

52 Family 139446 145115 4.1Non-Family 156502 159250 1.8Total 147089 152159 3.4

Productivity level




Irish owned firms account for the majority of employment and enterprises in both wholesale and retail trade

NACE Rev. 1.1

Nationality of

Ownership2002 2003 2004 2005 2002 2003 2004 2005

51 Irish 79.4 79.4 80.6 78.9 70.8 77.3 74.2 71.4Foreign 20.6 20.6 19.4 21.1 29.2 22.7 25.8 28.6Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

52 Irish 93.1 94.0 93.6 93.5 72.0 73.4 73.0 69.5Foreign 6.9 6.0 6.4 6.5 28.0 26.6 27.0 30.5Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Numberof Enterprises Number of Persons Engaged




But foreign firms had higher productivity levels and growth between 2002-05

NACE Rev. 1.1

Nationality of

Ownership2002 2003 2004 2005

2002-03

2003-04

2004-05

2002-05

51 Irish 463699 531734 568982 621112 14.7 7.0 9.2 33.9Foreign 775579 819808 991483 1259729 5.7 20.9 27.1 62.4Total 554916 597074 677851 803495 7.6 13.5 18.5 44.8

52 Irish 131579 140114 134384 128334 6.5 -4.1 -4.5 -2.5Foreign 173300 171075 172387 180490 -1.3 0.8 4.7 4.1Total 143240 148364 144652 144250 3.6 -2.5 -0.3 0.7

Productivity level Productivity growth rate




So what have we learned?

Sales and VA measures of productivity are not always consistent in indicating the sectors within wholesale and retail trade that are the most productive, or where productivity is increasing the most

Firm size matters for productivity levels and growth- In wholesale trade, larger firms generally have higher productivity levels, while for

retail trade, smaller firms have higher productivity levels Family ownership matters for productivity levels and growth

- While non-family owned firms had the highest productivity levels in both wholesale and retail trade, family owned firms in both wholesale had higher productivity growth

Foreign ownership matters for productivity levels and growth- Foreign firms had higher productivity levels and growth between 2002-05

Next steps- Interaction between firms size, family ownership, foreign ownership, exporting- Analyse the contribution of each sub-sector within wholesale and retail trade to

productivity growth- Set out the implications of the results for differentiating and targeting public policy

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