Executive Summary
National income and product accounts are, for many countries, the most important measures of overall economic activity. Key benchmarks derived from these accounts— most notably gross domestic product—along with other economic data such as price and employment statistics, are widely viewed as indicators of how well a nation is doing.
Nevertheless, since their first construction for the United States by Simon Kuznets, concerns have been voiced that the accounts are incomplete and misleading because they omit nonmarket activities—unpaid and volunteer work, leisure pursuits, most investment in human capital, and many others—that affect the population’s well-being. Moreover, data from the accounts can only provide a partial measure of the sources of growth in the economy. Since their inception, researchers interested in explaining economic growth have supplemented the national accounts with estimates of the contributions of research and development, natural resources, and investments in human capital. These concerns, and the need to supplement national accounting data, reflect the reality that economic and social welfare do not stop at the market's border, but extend to many nonmarket activities. Failure to account for these activities may significantly distort policy makers’ sense of economic trends and the desirability of potential policy interventions.
The Panel to Study the Design of Nonmarket Accounts was charged with evaluating current approaches, examining data requirements, determining priorities for areas of coverage, and suggesting further research to strengthen the knowledge base about nonmarket accounting. This interim report identifies the key and often controversial issues in nonmarket accounting and offers some initial insights about these issues.
An overarching issue that must be addressed is the question of scope for nonmarket accounts—where in the range of economic-related activities to draw the border of inclusion. The panel has focused much of its attention to date on household production, human capital and education, and health. Each of these areas is associated with output that is both quantitatively important and likely to have changed in relative importance over time. These are also areas in which work is ongoing, data are developing, and that involve conceptual issues that are key to nonmarket accounting generally.
It is impossible to create a framework for developing nonmarket accounts without a statement of the measurement objective. Should the primary intent of the accounts be to provide a measure of national output or of national welfare (or some compromise)? Both are important economic concepts and very difficult to separate from one another. An experimental set of accounts could be expanded under either guiding principle, although the expansion would surely be much broader and ambitious if the goal is to provide an accurate indicator of welfare trends. For example, it seems clear that the value of household production should be included in an expanded account, even if the goal is limited to fuller accounting of national output. However, household leisure may not qualify as output, narrowly defined, though it certainly affects well-being. Additionally, how goods and services are categorized—as “intermediate” or “final,” consumption or investment, and input or output—may be affected by the measurement objective.
Another key issue is how best to value inputs and outputs, once identified, in the absence of market prices. Valuation typically involves finding market substitutes for the nonmarketed inputs or outputs in question; given the distance from the market of some utility-generating activities, however, this approach is not always possible.
The panel is also considering how the experimental nonmarket accounts might be designed to work as compatibly as possible with the current core accounts, the merits of which have been validated from a long history of use. The panel concludes that, when possible, the conceptual framework to be applied in accounting for nonmarket activity should parallel the framework used in the existing national accounts. This argues for pursuing an approach that maintains a double-entry (input/output) structure; uses dollar values as a metric; seeks to value outputs at their marginal value (the market price) rather than their total value; and derives these marginal values from analogous, observable market transactions. Yet adhering to this framework makes it more difficult to construct accounts and, in some cases, may not produce the most policy-relevant data. The panel argues that, for some cases, concerns of practical use may outweigh those relating to consistency with the core accounts.
The panel is also charged with examining and making recommendations with respect to key data that are needed to develop augmented accounts. Because this issue is linked to unresolved framework questions, the panel is not yet ready to make detailed recommendations about data needs for specific accounts. The report does comment on the Bureau of Labor Statistics’ soon-to-be-released American Time Use Survey which, in the view of the panel, represents a huge step forward in measuring time inputs in the production of health, household goods, and human capital. The single most important information required for nonmarket accounts is data on how the population spends its time; like its market analog, the most pervasive input in nonmarket production is time.
