Alternative measures of income
It is a stylised fact that intangible capital plays an increasingly important role in growth and productivity. But less well known are the potential measurement challenges these bring, in particular with regards to whether the underlying use of the intangible is recorded in the accounts as generating cross-border services flows – which increase gross domestic product (GDP) – or cross-border flows of primary income, recorded in gross national income (GNI). This matters for labour productivity measures. In this regard, productivity measures based on GNI are able to provide a complementary view that may shed light on possible measurement distortions.
In most countries labour productivity measures based on GDP and GNI are similar, as the underlying income flows are relatively small or offset each other. In Ireland and Luxembourg, however, significant differences arise between the two measures reflecting the significant role played by multinationals with high intellectual property content in generating value added, and in turn the significant redistribution of that value added to shareholders, and often parents, as income flows.
Definition
GNI is defined as GDP plus net receipts from abroad of compensation of employees and property income plus net taxes and subsidies receivable from abroad. In most countries, net receipts of property income account for most of the difference between GDP and GNI. Property income from abroad includes interest, dividends and all or part of the retained earnings of foreign enterprises owned fully or in part by residents. Compensation of employees from abroad is that earned by residents who essentially live and consume inside the economic territory but work abroad. They also include compensation of employees earned by non-residents who live and work abroad only for short periods (seasonal workers).
Comparability
There are practical difficulties in the measurement of international flows of both compensation of employees and property income. In practice, many flows related to the use of intellectual property assets are often recorded as property income flows between affiliates. This impacts directly on GDP levels but it also creates possible inconsistencies for productivity as the underlying intellectual property being used in production in one country may be recorded on the balance sheets of another. Measures of labour productivity based on GNI in part “correct” for these potential inconsistencies.
Some care is also needed when interpreting productivity in countries with high numbers of cross-border workers. Labour compensation earned by these workers will not be included in the GNI of the country in which they work but their hours worked will be included in the calculation of labour input.
References
OECD National Accounts Statistics (database), https://doi.org/10.1787/na-data-en.
OECD Productivity Statistics (database), https://doi.org/10.1787/pdtvy-data-en.
OECD (2009), Handbook on Deriving Capital Measures of Intellectual Property Products, https://doi.org/10.1787/9789264079205-en.
