Regional accounts of production and employment: documentation of statistics

An ancillary establishment produces services (in exceptional cases also goods such as additives and materials) mainly for the enterprise or an enterprise-type unit itself. Ancillary activities are nearly always a prerequisite for performing principal and secondary activities. The industry of the ancillary establishment is defined according to the principal activity it serves.

Ancillary establishments can be e.g. the head or district office or other such administrative office, a separate transport unit, a repair shop for the enterprise's own vehicles, a warehouse or a data processing unit. If such functions take place in the same establishment as normal production, they are usually not considered to be ancillary establishments.

In regional and industrial statistics on manufacturing also a power plant linked to an industrial establishment producing energy for the establishment or enterprise and a separate research and development unit linked to an industrial establishment are regarded as ancillary establishments.

Basic price is a price concept in the national accounts. The basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output, minus any tax payable on that unit as a consequence of its production or sale (i.e. taxes on products), plus any subsidy receivable on that unit as a consequence of its production or sale (i.e. subsidies on products). It excludes any transport charges invoiced separately by the producer. It includes any transport margins charged by the producer on the same invoice, even when they are included as a separate item on the invoice. (subsidies on products).

Compensation of employees is defined as the total remuneration, in cash or in kind, payable by an employer to the employee in return for work done by the latter during the accounting period. In regional household accounts compensation of employees is calculated for regions according to the location of the household.

Compensation of employees is broken down into:
a) wages and salaries: wages and salaries in cash; wages and salaries in kind
b) employers' social contributions: employers actual social contributions; employers imputed social contributions.

Consumption of fixed capital (P.51C) represents the amount of fixed assets used up, during the period under consideration. Consumption is the result of normal wear and tear and foreseeable obsolescence, including a provision for losses of fixed assets as a result of accidental damage which can be insured against.

Consumption of fixed capital should be distinguished from the depreciation shown in business accounts. It refers to the amount of fixed assets used up, during the period under consideration. It should be estimated on the basis of the stock of fixed assets and the probable average economic life of the different categories of those goods.

The term economic territory means
a) the geographic territory administered by a government within which persons, goods, services and capital move freely
b) any free zones, including bonded warehouses and factories under customs control
c) the national air-space, territorial waters and the continental shelf lying in international waters, over which the country enjoys exclusive rights
d) territorial enclaves (i.e. geographic territories situated in the rest of the world and used, under international treaties or agreements between states, by general government agencies of the country (embassies, consulates, military bases, scientific bases etc.)
e) deposits of oil natural gas, etc. in international waters outside the continental shelf of the country, worked by units resident in the territory as defined in the preceding sub-paragraphs.

The economic territory does not include extraterrestrial enclaves (i.e. the parts of the country's own geographic territory used by general government agencies of other countries, by the Institutions of the European Union or by international organisations under international treaties or agreements between states).

The nomenclature of territorial units for statistics (NUTS) provides a single, uniform breakdown of the economic territory of the European Union. NUTS is the territorial breakdown for compiling regional accounts.

Employees are defined as all persons who, by agreement, work for another resident institutional unit and receive a remuneration.

Employees are classified here if they are not also in self-employment which constitutes their principal activity: in that case they are classified under self employed persons. (ESA 1995 11.12)

Employment covers all persons – both employees and self-employed – engaged in some productive activity that falls within the production boundary of the system.

The economic territory of a country can be broken down into regional and extraregio territory.

The extraregio territory is made up of parts of the economic territory of a country which cannot be attached directly to a single region.

The extraregio territory consists of, among others, national air-space, territorial waters and the continental shelf lying in international waters over which the country enjoys exclusive rights; territorial enclaves, embassies, consulates, military and scientific bases; deposits of energy and natural resources outside the continental shelf of the country, worked by resident units.

The nomenclature of territorial units for statistics (NUTS) provides a single, uniform breakdown of the economic territory of the European Union. NUTS is the territorial breakdown for compiling regional accounts.

FISIM refers to indirect financial intermediation services produced by providers of financial intermediation services (deposit banks, other monetary financial institutions practising financial intermediation, and other monetary financial institutions) but not charged separately to the customers. Institutions that practise financial intermediation services provide services for which they charge their customers indirectly by means of paying their depositors interest at a lower rate than the rate that the institutions charge their borrowers (interest rate margin). The interest rate margin covers the other expenses of the activity and produces a surplus. In national accounts, the result of this activity must be measured indirectly, which explains why the phenomenon is referred to as "indirect financial intermediation services". The English abbreviation FISIM (financial intermediation services indirectly measured) is frequently used in Finnish and Swedish texts.

GDP, gross domestic product at market prices is the final result of the production activity of resident producer units. It can be defined in three ways: as the sum of gross value added of the various institutional sectors or the various industries plus taxes and less subsidies on products; as the sum of final uses of goods and services by resident institutional units (final consumption, gross capital formation, exports minus imports); as the sum of uses in the total economy generation of income account (compensation of employees, taxes on production and imports less subsidies, gross operating surplus and gross mixed income). (ESA 1995 8.89.)

Gross fixed capital formation consists of resident producers' acquisitions, less disposals, of fixed assets. Fixed assets are tangible or intangible assets produced as outputs from processes of production that are themselves used repeatedly, or continuously, in processes of production for more than one year.

The institutional unit is an elementary economic decision-making centre. A resident unit is regarded as constituting an institutional unit if it has decision-making autonomy in respect of its principal function and either keeps a complete set of accounts or it would be possible and meaningful, from both an economic and legal viewpoint, to compile a complete set of accounts if they were required. Decision-making autonomy means that institutional units are capable of owning goods and assets, of incurring liabilities and of engaging in economic activities and transactions with other units in their own right.

The following are deemed to be institutional units:

a) units which have a complete set of accounts and autonomy of decision:
(1) private and public corporations
(2) co-operatives or partnerships recognised as independent legal entities
(3) public producers which by virtue of special legislation are recognised as independent legal entities
(4) non-profit institutions recognised as independent legal entities
(5) agencies of general government.

b) units which have a complete set of accounts and which are deemed to have autonomy of decision: quasi-corporations

c) units which do not necessarily keep a complete set of accounts, but which by convention are deemed to have autonomy of decision:
(1) households
(2) notional resident units.

The institutional units are grouped together into five mutually exclusive institutional sectors which together make up the total economy. The sectors (each sector is also divided into sub-sectors) are composed of the following types of units:

a) non-financial corporations
b) financial corporations
c) general government
d) households
e) non-profit institutions serving households.

Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services may be either transformed or used up by the production process.

Products used for intermediate consumption should be recorded and valued at the time they enter the process of production. They are to be valued at the purchasers’ prices for similar goods or services at that time.

Establishment refers to an economic unit which under one ownership or control produces commodities of mainly one particular type usually at one location.

An ancillary establishment is located separately from the actual production activity of an enterprise and produces services only for the enterprise itself. Examples of ancillary establishments include head offices, warehouses or repair shops for the enterprise's own vehicles.

The market price in an economic transaction corresponds to the amount paid by the buyer to the seller for an acquisition made in a free trade situation.

With the exception of some variables concerning population and labour, the system of national accounts shows all flows and stocks in monetary terms. The system does not attempt to determine the utility of flows and stocks. Instead, flows and stocks are measured according to their exchange value, i.e. the value at which flows and stocks are in fact, or could be, exchanged for cash. Market prices are thus ESA's basic reference for valuation.

In the case of monetary transactions and cash holdings and liabilities, the values required are directly available. In most other cases, the preferred method of valuation is by reference to market prices for analogous goods, services or assets. This method is used for e.g. barter and the services of owner-occupied dwellings. When no market prices for analogous products are available, for instance in the case of non-market services produced by government, valuation should be made according to production costs. If neither of these two methods are feasible, flows and stocks may be valued at the discounted present value of expected future returns. However, due to the great uncertainty involved, this last method is only recommended as a last resort.

Stocks should be valued at current prices at the time to which the balance sheet relates, not at the time of production or acquisition of the goods or assets that form the stocks. It is sometimes necessary to value stocks at their estimated written-down current acquisition values or production costs.

NUTS (Nomenclature des Unités Territoriales Statistiques) is the regional classification system of the EU, according to which all common regional statistics of the EU are compiled. The official NUTS division is recommended to be used as the primary regional division in statistics. The NUTS classification is defined in the Regulation of the European Parliament and of the Council No. 1059/2003. This is updated by the European Commission's delegated regulation. NUTS 2021, that is valid from 1 January 2021, is based on the delegated regulation 2019/1755.

The NUTS nomenclature is used for
a) collecting, developing and harmonising Community regional statistics
b) socio-economic analyses of areas
c) defining Community regional policy.

In Finland NUTS level 1 refers to the division into Mainland Finland and Åland and NUTS level 2 major regions. Regions should correspond to the NUTS level 3 areas, but Finland's NUTS 2021 remains unchanged and corresponds to NUTS 2016 (valid from 1 January 2018 - 31 December 2020). Sub-regional units form LAU level 1 (NUTS 4) and municipalities LAU level 2 (NUTS 5). LAU (Local Administrative Unit).

In the European statistics the most important one is NUTS level 2 (major regions), on which all regional data are to be produced.

Output at basic prices consists of the products which have been produced in the accounting period. Three categories of output are distinguished: market output, output for own final use, and other non-market output. Output is to be recorded and valued when it is generated by the production process.

The own-account production of housing services by owner-occupiers falls within the production boundary of the European System of Accounts.

The output of services of owner-occupied dwellings should be valued at the estimated value of rental that a tenant would pay for the same accommodation, taking into account factors such as location, neighbourhood amenities, etc. as well as the size and quality of the dwelling itself.

In regional accounts population refers to mean population, which is the average of the population in two consecutive years.

Data on the permanent population living in a municipality at the end of the year (31.12.) is collected from the Population Information System of the Population Register Centre. Population refers to the permanent population of the municipality. The persons who had a permanent residence in Finland at the end of the year according to the Population Information System belong to the population regardless of nationality. The same applies to Finnish nationals, who are temporarily resident abroad.

The value determined in money

The production boundary included in national accounts is essential for defining the coverage of the accounting system.

Production is an activity carried out under the control and responsibility of an institutional unit that uses inputs of labour, capital and goods and services to produce goods and services. Production does not cover purely natural processes without any human involvement or direction, like the unmanaged growth of fish stocks in international waters (but fish farming is production).

Production includes:

a) the production of all individual or collective goods or services that are supplied to units other than their producers (or intended to be so supplied);
b) the own-account production of all goods that are retained by their producers for their own final consumption or gross fixed capital formation. Own account production for gross fixed capital formation includes the production of fixed assets such as construction, research and development activities, the development of software and mineral exploration for own gross fixed capital formation.

Own-account production of goods by households pertains in general to:
(1) own-account construction of dwellings;
(2) the production and storage of agricultural products;
(3) the processing of agricultural products, like the production of flour by milling, the preservation of fruit by drying and bottling; the production of dairy products like butter and cheese and the production of beer, wine and spirits;
(4) the production of other primary products, like mining salt, cutting peat and carrying water;
(5) other kinds of processing, like weaving cloth, the production of pottery and making furniture.

Own-account production of a good by households should be recorded if this type of production is significant, i.e. if it is believed to be quantitatively important in relation to the total supply of that good in a country.

By convention, in the ESA, only own-account construction of dwellings and the production, storage and processing of agricultural products is included; all other own-account production of goods by households are deemed to be insignificant for EU countries.

c) the own-account production of housing services by owner-occupiers;
d) domestic and personal services produced by employing paid domestic staff;
e) volunteer activities that result in goods, e.g. the construction of a dwelling, church or other building are to be recorded as production. Volunteer activities that do not result in goods, e.g. caretaking and cleaning without payment, are excluded.

All such activities are included even if they are illegal or not-registered at tax, social security, statistical and other public authorities.

Production excludes the production of domestic and personal services that are produced and consumed within the same household (with the exception of employing paid domestic staff and the services of owner-occupied dwellings). Cases in point are:
a) cleaning, decoration and maintenance of the dwelling as far as these activities are also common for tenants;
b) cleaning, servicing and repair of household durables;
c) preparation and serving of meals;
d) care, training and instruction of children;
e) care of sick, infirm or old people;
f) transportation of members of the household or their goods.

The purchaser’s price is the price the purchaser actually pays for the products; including any taxes less subsidies on the products (but excluding deductible taxes like VAT on the products); including any transport charges paid separately by the purchaser to take delivery at the required time and place; after deductions for any discounts for bulk or off-peak-purchases from standard prices or charges; excluding interest or services charges added under credit arrangements; excluding any extra charges incurred as a result of failing to pay within the period stated at the time the purchases were made.

Value relations between currencies, purchasing power parities, are calculated by means of price comparisons between countries. Purchasing power parity is the exchange rate calculated by which the price of the commodity basket of two countries is exactly the same converted into the common currency. Purchasing power parity is usually not the same as the actual exchange rate. Purchasing power parity is used to measure the value of the national economy's money on the basis of how much goods and services can be bought with its currency. This provides a more accurate conception of the output of the national economy per capita than by only converting the value of gross domestic product or gross national income (usually) into U.S. dollars or euros.

A reference year is a year which is used particularly for the presentation of a time series of constant price data. In a series of index numbers it is the year that takes the value 100. The series' internal weights do not need to be based on the reference year. The base year is the year that is used in constructing the series.

In regional accounts the concept of a region is based on the division into municipalities as used in the latest statistical year of regional accounts and the related classification of sub-regional units, regions and major regions. In addition the regional accounts contain extraregio territories that do not belong to municipalities.

The regional classification in the regional accounts corresponds to the uniform NUTS nomenclature of the territory of the European Union.

The economic territory of a country can be broken down into regional and extraregio territory.

The regional territory includes the region that is part of the geographic territory of a country and any free zones, including bonded warehouses and factories under customs control in the region.

The nomenclature of territorial units for statistics (NUTS) provides a single, uniform breakdown of the economic territory of the European Union. NUTS is the territorial breakdown for compiling regional accounts.

Self-employed persons are defined as persons who are the sole owners, or joint owners, of the unincorporated enterprises in which they work, excluding those unincorporated enterprises that are classified as quasi-corporations. Self-employed persons are classified here if they are not also in a paid employment which constitutes their principal activity: in that latter case they are classified under employees.

Subsidies (D.3) are current unrequited payments which general government or the institutions of the European Union make to resident producers, with the objective of influencing their levels of production, their prices or the remuneration of the factors of production. Other non-market producers can receive other subsidies on production only if those payments depend on general regulations applicable to market and non-market producers as well.

Subsidies granted by the Institutions of the European Union cover only current transfers made directly by them to resident producer units.

Subsidies are classified into:

a) subsidies on products (D.31)
(1) import subsidies (D.311)
(2) other subsidies on products (D.319)
b) other subsidies on production (D.39).

Taxes on production and imports (D.2) consist of compulsory, unrequited payments, in cash or in kind which are levied by general government, or by the Institutions of the European Union, in respect of the production and importation of goods and services, the employment of labour, the ownership or use of land, buildings or other assets used in production. These taxes are payable whether or not profits are made.

Taxes on production and imports are divided into:
a) taxes on products (D.21)
(1) value added type taxes (VAT) (D.211)
(2) taxes and duties on imports excluding VAT (D.212)
– import duties (D.2121)
– taxes on imports excluding VAT and import duties (D.2122)
(3) taxes on products, except VAT and import taxes (D.214)
b) other taxes on production (D.29).

The system of national accounts records the flows on accrual basis. In other words, when economic value is created, changed or destroyed or when claims and obligations are born or they are changed or annulled.

Output is recorded when it has been produced and not when the buyer has paid for it, and sales of assets are recorded when the assets are released and not when the corresponding payment is made. Interest is recorded to the accounting period from which it is generated, regardless of whether it is actually paid in that period or not. Accrual-based recording is applied to all flows, both those in money and those that are not measured in money, both within a unit and between units.

All flows should be recorded at the same time for all institutional units involved and in all concerned accounts. In practice, institutional units do not always use the same accounting rules. And even if they do, there may be differences in the actual recording due to practical reasons like delays in communication. Therefore, the performers of the economic transactions in question may record the transactions at different times. These deviations must be corrected with adjustments.

A transaction is an economic flow that is an interaction between institutional units by mutual agreement or an action within an institutional unit that it is useful to treat as a transaction, often because the unit is operating in two different capacities. It is convenient to divide transactions into four main groups:

a) transactions in products - which describe the origin (domestic output or imports) and use (intermediate consumption, final consumption, capital formation or exports) of products ;

b) distributive transactions - which describe how value added generated by production is distributed to labour, capital and government, and the redistribution of income and wealth (taxes on income and wealth and other transfers);

c) financial transactions - which describe the net acquisition of financial assets or the net incurrence of liabilities for each type of financial instrument. Such transactions often occur as counterparts of non-financial transactions, but they may also occur as transactions involving only financial instruments;

d) transactions not included in the three groups above:
consumption of fixed capital and acquisitions less disposals of non-produced non financial assets.

Most transactions are monetary transactions, where the units involved make or receive payments, or incur liabilities or receive assets denominated in units of currency. Transactions that do not involve the exchange of cash, or assets or liabilities denominated in units of currency, are non-monetary transactions.
Intra-unit transactions are normally non-monetary transactions. Non-monetary transactions involving more than one institutional unit occur among transactions in products (barter of products), distributive transactions (remuneration in kind, transfers in kind, etc.) and other transactions (barter of non-produced non-financial assets).

All transactions are recorded in monetary terms. The values to be recorded for non-monetary transactions must therefore be measured indirectly or otherwise estimated.

With the exception of some variables concerning population and labour, the system shows all flows and stocks in monetary terms. The system does not attempt to determine the utility of flows and stocks. Instead, flows and stocks are measured according to their exchange value, i.e. the value at which flows and stocks are in fact, or could be, exchanged for cash. Market prices are thus the basic reference for valuation in the national accounts.

In the case of monetary transactions and cash holdings and liabilities, the values required are directly available. In most other cases, the preferred method of valuation is by reference to market prices for analogous goods, services or assets. This method is used for e.g. barter and the services of owner-occupied dwellings. When no market prices for analogous products are available, for instance in the case of non-market services produced by government, valuation should be made according to production costs. If neither of these two methods are feasible, flows and stocks may be valued at the discounted present value of expected future returns. However, due to the great uncertainty involved, this last method is only recommended as a last resort.

Stocks should be valued at current prices at the time to which the balance sheet relates, not at the time of production or acquisition of the goods or assets that form the stocks. It is sometimes necessary to value stocks at their estimated written-down current acquisition values or production costs.

Value added (gross) refers to the value generated by any unit engaged in a production activity. In market production it is calculated by deducting from the unit's output the intermediates (goods and services) used in the production process and in non-market production by adding up compensation of employees, consumption of fixed capital and possible taxes on production and imports.