Statistical Classifications SystemsPart II

Md. Dilder HossainMd. Dilder Hossain

ISIC: scope and purpose

• International Standard International Classification of all Economic Activities (ISIC) - A standard classification of productive economic activities.

• Productive activities – production of goods and services

• Main purpose of ISIC is to provide a set of activity categories for:– the data collection– presentation of statistics according to such

activities

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ISIC: scope and purpose

• ISIC divides statistical data into categories that are homogeneous with respect to economic activities

• ISIC – a classification according to kind of economic activity, not a classification of goods and services

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Economic activities

• Economic activity is a process resulting in a certain type of products, which involves an input of resources and a production process.

– Principal activity– Secondary activity– Ancillary activity

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Economic activities (contd.)

• Principal activity contributes most to the total value added (VA) of the entity under consideration.

• Secondary activity is activity with less VA than the principal activity

• Ancillary activity provides a supporting service without VA of itself. [Ex: Promoting sales, Auditing and accounting, Hiring and in-house training employees, Cleaning & maintenance of buildings, In house transportation]

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Statistical units

• Economic statistics describe the activities of economic transactors (for example: non-financial enterprises, financial institutions, government, household etc.) and the transactions (intermediate and final consumption, capital formation etc.) that take place between them.

• To create statistics that are consistent across entities and internationally comparable, it is necessary to define and delineate standard statistical units.

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Statistical units

• Economic entities have numerous characteristics and a variety of data are required about them that may be classified in many ways

• Among the most important of which are by:– Institutional sector– Activity– Geographical region

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Statistical units

• Form the building blocks for classification.

• A statistical unit is the basic entity for which information is to be collected and analyzed

• Legal units: legal entity recognized by law or society independently of the persons or institutions that own them or are members of them.

• Legal entity owns goods or assets, incur liabilities, enter into contracts. Ex; corporation

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Statistical units

• An institutional unit is capable of:– Owning assets– Incurring liabilities – Engaging in economic activities– Engaging in transactions– Carrying out contracts– Entering into legal contracts

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Statistical units

• An institutional unit:– The core unit (legal entity) of the SNA– Units which have a complete set of

accounts and autonomy of decision• private and public companies• independent cooperatives or

partnerships• independent public enterprises;• non-profit institutions• agencies of general government

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Statistical units

An institutional unit:• Units which do not necessarily keep a

complete set of accounts, but which by convention are deemed to have autonomy of decision:– households

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Statistical units

• Enterprise:– An Enterprise is an institutional unit

producing goods or services – Benefits from a certain degree of autonomy

in decision-making, especially for the allocation of its current resources.

– Carries out one or more activities at one or more locations.

– Enterprise group: an association of enterprises bound together by legal and/or financial links

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Statistical units

• Establishment:– An Establishment is an enterprise or part of

enterprise • situated in a single location • carrying out only a single productive (non

ancillary) activity• A Local unit is an enterprise or part thereof

situated in a geographically identified place

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Statistical units

• A Kind-of-activity-unit (KAU) is a part of an enterprise contributing to the performance of an activity at class level (four digits) of ISIC/NACE and corresponds to one or more operational subdivisions of the enterprise

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Statistical units

• Problems with Enterprises– May engage simultaneously in different

kinds of productive activities and/or

– Produce different kinds of goods and services

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Statistical units

Example: SHARP Corporation Head Office (Osaka) Appliance Systems Group (Osaka) Corporate Research & Development Group

(Nara) Information Systems Group (Nara) Printing & Reprographic Systems Group

(Nara) Multimedia Systems Business Development

Center (Tokyo)16

Statistical units

• Enterprise: autonomous in financial and investment decision-making and in allocating resources, but may not be homogeneous in activities or location

• Kind-of-activity unit: homogeneous in its activities but not in location

• Local unit: homogeneous in location but may not be homogeneous in activities

• Establishment: homogeneous in both activity and location

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Statistical units

• For economic analysis, two main types of data are required to describe the economic activities of the units of which the economy is composed:– Financial statistics– Production statistics classified by industry and in

some countries by geographical area.• These data are integrated into the SNA• Thus, two main statistical units need to be delineated:

– Enterprise – for the compilation of financial statistics

– Establishment – for the compilation of production statistics

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Classification of Units: ISIC

• An industry is a group of establishments engaged in the same or similar kinds of activity

• Principle of classification: An output-type criterion, based mainly on the principal class of goods produced or services rendered

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Classification of Units: ISIC

• ISIC is not designed to measure product data at any detailed level (For this purpose: CPC);

• ISIC does not draw distinction according to:– Kind of ownership– Type of legal organization

• ISIC does not differentiate between market and non-market activities

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Classification of Units: ISIC

• Please open: http://unstat.un.org/unsd/cr/registry/regcst.asp?C|=27

• Please have a look at sections

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Classification of Units: ISIC

• International Standard Industrial Classification of all Economic Activities (ISIC Ver.4)

• Four digit levels

– Sections – 21 – Alphabetical – Divisions – 99 – two-digits– Groups - ….. – three-digits– Classes - ….. – four-digits

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Classification of Units: ISIC

• Principles used in constructing the Classification:

– Criteria in respect of divisions (two-digit) and groups (three-digit)

• Similarity in the structure of the units

• Certain relationships in an economy

• For divisions: a) kind of activity carried out frequently under the same ownership; b) potential differences in scale and organization of activities and in capital requirements and finance

• Pattern of categories at various levels of classification in national classifications

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Classification of Units: ISIC

• Principles used in constructing the Classification:

– Criteria in respect of classes (four-digit)

• Similar in respect of the kinds of activity

• The classes are defined to satisfy the following two conditions:

– Production of the category of goods and services of a given class accounts for the bulk of the output of the units classified to that class

– Class contains the units that produce most of the category of goods and services that characterize it.

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ISIC 3.1 coding system

A D Q…LEVEL 1

99LEVEL 2

LEVEL 3

0201

…

15 27…… …

011 012 013 014 271 272 273 990

2731 2732LEVEL 4 99002710 27200130 0140

…

…

…

…0111 0112 0113 …

…

……

Complex activities: Example

One activity may consist of

• One simple process, e.g. WEAVING (ISIC 131), OR

• A whole range of sub-processes, e.g. the MANUFACTURING OF A CAR (ISIC 2910) is one activity, including sub-activities such as:– Manufacture of bodies (ISIC 2920), – Manufacture of parts and accessories (ISIC 2930),– Manufacture of batteries (ISIC 2720), – Manufacture of pumps for motor vehicles and

engines (ISIC 2813) etc.

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Treatment of multiple activities

• Unit should be classified to ISIC class with the largest share of VA by using “top-down” method.

• If VA cannot be determined:– An approximation by other criteria such as:

• The proportion of gross output of the goods or services

• Value of sales of those groups of products• Employment according to the proportion of

people engaged in these different kinds of activity

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Treatment of multiple activities (contd.)

• If a unit is engaged in several types of independent activities, it should be classified, as per principal activity, to ISIC class with largest share of value added by using top down method

• Identifying principal activity by top down method– List activities of unit attributing to each class, the value

added/ output– Determine the section that has highest share– Within the section, determine the division that has highest

share– Within the division, determine the group that has highest

share– Within the group, determine the class that has highest

share– This class identifies the principal activity

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Treatment of multiple activities (contd.)

Section Division Group Class Description VA Share %

C

26 264 2640 Mfg of consumer electronics 7

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272 2720 Mfg of batteries and accumulators 8

273

2731 Mfg of fibre optic cables 3

2732Mfg of other electronic and electric

wires& cables21

2733 Mfg of wiring devices 8

32 325 3250Mfg of medical & dental instruments &

supplies5

G 46

461 4610 Wholesale on a fee & contract basis 7

465 4651Wholesale of computers, PC

peripheral equipment and software

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J 62 620 6201 Computer programming activities 13

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Example: A reporting unit may carry out the following activities

Treatment of multiple activities- Example- Solution (contd.)

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Step 1. Identify the section

Section CManufacturing 52

Section G Wholesale and retail trade; repair of motor vehicles and motorcycles 35

Section J Information and communication 13

Step.2 Identify the division (within section C)

Division 26 Mfg of consumer electronics 7

Division 27 Mfg of electrical equipment 40

Division 32 Other manufacturing 5

Step.3 Identify the group (within division 27)

Group 272 Mfg of batteries and accumulators 8

Group 273 Manufacturing of wiring and wiring devices 32

Step.3 Identify the class (within group 273)

Class 2731Mfg of fibre optic cables 3

Class 2732 Mfg of other electronic and electric wires& cables 21

Class 2733 Mfg of wiring devices 8

Treatment of multiple activities- Example- Solution (Contd.)

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• The principal activity is therefore 2732: Manufacture of other electronic and

electric wires & cables

• Although the class with the largest share of value added is class 4651: Wholesale of computers, PC peripheral equipment and software

• If allocation had been made directly to the class with largest share of value added, we would have got the strange result of putting this enterprise outside manufacturing

Central Product Classification (CPC),Ver. 2: Purpose, scope and coverage.

• To provide a framework for international comparison of statistics

• To serve as guide for developing or revising classification schemes of products

• To classify all goods and services

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CPC: Structure

• Five digit levels • Sections - 10 • Divisions - 69• Groups - 293• Classes - 1050• Sub-classes - 2018

Classification of Products: CPC (Cont’d)

• Designed to be integrated and corresponded to ISIC, but with CPC itself, one cannot tell which industries produce the products

• To identify product type by originating activity, each product need to be recorded in both ISIC and CPC codes in a business survey (e.g. for IO tables)

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Activities vs. Products: Example 1

A one-to-one correspondence between activities and products:

– SUGAR (CPC 235) manufactured from sugar cane or sugar beet (ISIC 1072)

– ELECTRICITY (CPC 171) produced from coal, oil, nuclear power stations, or hydroelectric plants (ISIC 3510)

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Activities vs. Products: Example 2

A one-to-many correspondence between activities and products:

– Different groups: MEAT (CPC 211) and HIDES (CPC 029) by slaughtering animals (ISIC 1010)

– Different classes: SUGAR (CPC 2351) and MOLASSES (CPC 2354) by refining sugar canes (ISIC 1072)

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Other Product Classifications

• Customs – Harmonized Commodity Description and Coding System (HS) used by customs authorities to assess duties

• Trade – Standard International Trade Classification (SITC) used by UNSTAT, Custodian UNSD

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Classifications of Expenditure According to Purpose

• Group various outlays of institutional units according to the purposes or objectives in spending the funds

• Designed to serve the purposes:– An alternative breakdown of expenditure– Means to regroup key aggregates– Distinguish collective services & individual

consumption goods provided by govt

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Classifications of Expenditure According to Purpose : Types

• Classification of the Functions of the Government (COFOG)

• Classification of Individual Consumption by Purpose (COICOP)

• Classification of the Purposes of Non-Profit Institutions Serving Households (COPNI)

• Classification of the Outlays of Producers by Purpose (COPP)

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Classifications of Expenditure According to Purpose: COFOG

• Classifies by function the transactions of the sector government and its subsectors

• Used for intertemporal and international comparisons independently of the institutional organization of govt: e.g. govt outlays – defense, public safety, education, creation of employment, payment for govt. debt

• To identify consumption expenditures which benefit individual households in order to derive actual final consumption of households

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COFOG (Cont’d)

• Each transaction should be classified into the function that is closest to its purpose

• The purpose of some govt units and their transactions are general and should be classified as general public services

• When unit expenditures cannot be functionally classified as such, the entire unit expenditure may be classified according to an assessment or judgment of its principal functional activity

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Individual Consumption: COICOP

• To identify and classify “individual” consumption expenditures incurred by households according to the purposes, or objectives, that they are designed to achieve

• Driven by a functional principle rather than a market grouping principle: e.g. insurance on cars is included under transport rather than in the insurance item

• Useful in grouping product price data for the purpose of CPI

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Purposes of NPI serving Households: COPNI

• Classify outlays of private non-profit bodies rendering services to households according to the purpose they serve (covering same range of transactions as COFOG)

• In practice, it is difficult to collect detailed information on the activities of NPISHs: Assigning entire institution to one of the major purposes of the COPNI

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Outlays of Producers: COPP

• Classify expenditures by producers, (e.g. repairs and maintenance, sales promotion, general administration, employees training, etc.)

• Serve to identify whether outlays are linked to R&D, employee training & welfare, protection of the environment, etc

• In principle, apply to all producers; in practice, only apply to outlays of market producers

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Main Classification Systems: Schema

Uses of Classification SchemesIndustrial

ClassificationClassifications of

Expenditure(ISIC) (CPC)

Economic activities Intermediate consumption Govt (COFOG)

Industries Final demand HH (COICOP)Final consumption expenditure

Industry output Gross capital formation NPI (COPNI)Exports

Value added Imports Enterprises (COPP)

Product output

Central Product Classification

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Summary & Conclusions

• Classification is summarization and grouping

• To ensure intertemporal and international comparability of data, we need to have international standards and systems of classification

• SNA is the standard for economic statistics that considers comprehensive system of classifications

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Thank You

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