Public sector productivity programmes and performance indicators Case Finland

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Public sector productivity programmes and
performance indicatorsCase Finland

• EFFICIENCY OF SUB-CENTRAL PUBLIC SPENDING
  WORKSHOP 19.05.2006
• FRENCH BUDGET DIRECTORATE
• MINISTRY OF ECONOMY AND FINANCE
• Antti Moisio
• Principal economist
• Government Institute for Economic Research
• Helsinki, Finland

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Organisation of the presentation

• Finnish local government a short introduction
• Pressures to improve productivity in the Finnish
  public sector
• Public sector productivity programmes in Finland
• An attempt to create indicators research project
  on education services

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Centralized tasks

• Taxation and transfers to communities (but
  communal tax also)
• Employment policy
• Industrial policy
• Regional policy
• Higher education (but polythechics are municipal)
• Infrastructure, roads and railways (but streets,
  harbours and some roads are communal)
• Normative legal basis for health, education and
  social services (welfare state)
• State provision, but municipal production
• Financing state, municipalities, employers,
  clients varies between systems and tasks

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Finland has a complicated municipal structure

• 432 municipalities
• 231 joint municipal authorities
• The sizes of municipalities vary from 233
  inhabitants to more than 560 000

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Finnish labour force by sector in 2004
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Finnish public sector performs well in
international comparisons
SCP (2004)
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An example from education
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Why, then, should Finland worry about
productivity in public sector?

• Ageing population, growth of service needs
• Diminishing labour force, increasing age
  dependency ratio
• Tax competition
• Diminishing public sector productivity
• The share of public services in the economy is
  large - productivity in public sector can have an
  impact on the private sector as well

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The age dependency ratio changes fast
Demographic dependency ratio 1950-2050
Elderly people and children per working age
population
Over 65 years of age
Under 15 years of age
Source Statistics Finland
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and in international comparison especially the
old-age dependency ratio change is large (over
65-year of age population as percent of working
age population (20-64 years) in some EU member
states)
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and in the future public sector may hire even 70
percent of the new labour force
Source OECD
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and the productivity in public administration
and services is in decline...(1995100)
Source Statistics Finland, OECD
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Growth pressure of the municipal expenditure
following the change in age structure
Welfare services
Health care
Education
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Proposed measures to ensure fiscal stability in
the future

• Budget discipline
• Central government, municipalities
• Improving productivity
• Productivity programmes
• Reforming municipal structure and municipal
  service duties
• By preparing the systems for the ageing
• Reform of pension systems
• Reducing central government debt

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Productivity Action Programme the central
government

• Each ministry has prepared a productivity plan
  to be included in their financial and operative
  plans
• The main aim is to cut staff and spending
• Especially the better use of IT is in focus
• IT can replace work in accounting, administration
  functions
• The aim is to fill only 50 percent of vacancies
  opened due to retirement at the moment it seems
  that less than half of this target will be met
• First phase 2003-2004, second phase 2005-2006

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Productivity Action Programme the Municipal
Sector

• Grant system reform new criterias for education
  services, reassessing the system of discretionary
  grants
• Need to utilise the scale economies better by
• Supporting the mergers of municipalities
• Enhancing cooperation between municipalities,
  possibly by compulsory cooperation (minimum
  service areas or population served)?
• A new level of government?

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Public sector productivity indicators in Finland
an overview

• Government Institute for Economic Research (VATT)
  provides productivity indicators based on
  research results for several public services
  (some of these are described in the next slides)
• The National Research and Development Centre for
  Welfare and Health (STAKES) provides productivity
  indicators for special health care (hospitals)
  and long term care
• Statistics Finland provides more general
  productivity indicators (indices based on
  National Accounts data)
• In addition to the above, many municipalities
  have created their own indicators, but these are
  seldomly usable for general benchmarking purposes

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The aims of the research project on education
service productivity

• To define the productivity and efficiency
  differentials between oprganising units
  (municipalities, other organising bodies)
• To explain the efficiency differentials
• To provide information for benchmarking purposes
  and to spread information on the best practices
  in research reports, seminars, workshops, through
  internet pages etc.

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An example a Data Envelopment Analysis model
recently used to analyse Finnish comprehensive
schools

• Outputs
• The number of pupils in classes 1-6
• The number of pupils in classes 7-8
• The number of passed pupils on the 9. year ?
  average matriculation score
• The number of pupils who moved on to further
  education
• Inputs
• Teaching expenditures euro/pupil
• Other expenditures (mealsother services to
  pupils) euro/pupil

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The development of inputs and outputs
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The range of DEA-efficiency scores in 19982004,
- the average unit could have produced the output
with 20 percent lover expenditures
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however, much of the efficiency differentials
seem to be due to environmental factors

• Two thirds of the efficiency differentials could
  be explained using pupil characteristics, and
  other environmental factors
• After explanatory model, the average efficiency
  increases and the efficiency differentials are
  reduced dramatically
• But still, some underachievers and
  overachievers can be identified

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The econometric model used to explain the
DEA-efficiencies

• Explanatory variables
• Population (and population squared)
• Taxable incomes per capita
• Urbanisation rate
• Level of education for population aged 35-59 v.
• Unemployment rate
• Share of pupils given special assistance
• The share of pupils at classes 1-6
• The share of non-Finnish speaking pupils
• Average school size in the municipality
  (Pupils/schools)
• The share of left wing parties of the municipal
  council seats

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Municipal size and efficiency(other factors
controlled for)
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Increasing the school size has a positive impact
on efficiency

• The effect applies for all school sizes (the
  estimated optimal size is larger than the present
  schools)
• The effect diminishes as the school size
  increases, though

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The environmental factors need to be controlled
for
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Productivity change based on Malmquist index in
comprehensive schooling in 19982003
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Summary

• Research can and should - be used to produce
  indicators for efficiency and productivity of the
  public sector units
• Productivity and efficiency indicators based on
  research, where a number of environmental factors
  have been controlled for, are more useful and
  reliable that just simple per capita
  -indicators
• Much depends of the quality of the data though
• In Finland, the research projects have just
  started a year ago the aim is to provide
  information for benchmarking (between
  municipalities) and for monitoring purposes (CG
  on municipalities)
• No plans in Finland, however, to use this
  information for sanctioning or for rewarding
  purposes

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Contact info

• Antti Moisio
• Government Institute for Economic Research
• PL 1279, 00101 HELSINKI, FINLAND
• E-mail antti.moisio_at_vatt.fi
• WWW www.vatt.fi
• Tel
• 358 9 703 2947
• 358 50 328 6731