Sector Paper on Computer Programming, Consultancy and Related Activities

1
Sector Paper on Computer Programming, Consultancy
and Related Activities

• ISIC rev. 4 draft Sector 62
• 23rd Voorburg Group Meeting
• Author Michael Holdway
• US Bureau of Labor Statistics

2
Outline

• Introduction
• Classification
• Structure
• Issues
• Turnover
• Sources of Data
• Issues
• SPPI
• Pricing Methods
• Issues
• Summary

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Introduction to Sector Paper

• Provides a summary of international progress and
  challenges in measurement of turnover and service
  producer price changes
• Provides an overview of classification structures

4
Classification

• Industry
• ISIC 62 (rev 4.0 draft)
• NAICS 54151
• NACE 62 (rev 2.0)
• Product
• CPC 831 (rev 2.0)
• NAPCS 35

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Classification
6
Classification
7
Classification
8
Turnover

• Sources of Data
• Administrative records, tax data, trade
  association statistics company reports
• Sweden
• Surveys
• France - annual survey of business
• Netherlands annual structural business
  quarterly business tendency surveys
• US 5 year economic census, annual quarterly
  surveys
• Korea annual and monthly surveys

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Turnover

• Sources of Data
• Regardless of source, minimum requirement of
  annual data with economic benchmarks
• More frequent data may be required for national
  accounts

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Turnover

• Issues
• Comparability of estimates
• ISIC 4.0 and NACE 2.0
• Rapid changes in industry composition
• consolidation (buy outs/mergers)
• New market entrants
• Shifts in outputs
• Own Account Software

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Own Account Software

• Defined as in-house expenditures for new or
  significantly enhanced software created by
  business enterprises or government units for
  their own use
• No ISIC or NAICS industry
• Measured in national accounts by expenditures
• Occurs in any industry

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Services Producer Price Index

• Pricing Methods
• Pricing based on working time
• Charge out rates
• Model pricing
• Developed from establishment data
• Developed from trade association data
• Direct use of repeated services
• Contract pricing

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Services Producer Price Index

• Pricing Methods Choices
• Variety of very different services which require
  different pricing methods
• Record keeping practices vary
• Obligation of means versus Obligation of
  results

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Services Producer Price Index

• Prices based on working time
• Charge out rates
• In addition to hourly rates, also require
• description of services provided
• For example, type of program, features of program
  
• other price determining characteristics of the
  rates
• For example, include programming languages, skill
  level of programmers

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Services Producer Price Index

• Transfer pricing issues
• May not represent market transactions
• Long standing issue for all industries
• However, if captive entities revenue are included
  in national accounts, the SPPI should include
  transfer prices

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Services Producer Price Index

• Out of sample bias
• Laspeyers formula versus current outputs
• Frequent refreshing of sample/services
• Quality adjustment necessary

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Services Producer Price Index

• Advantages of frequent refreshing of sample
• Rapid new services development
• Frequent new entrants into industries
• Consolidation/mergers
• Disadvantages of frequent refreshing of sample
• Costly sampling/service selection
• Difficulty in identifying new entrants
• Length of time from sampling to index
  introduction

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Services Producer Price Index

• Quality adjustment issues
• Frequent violation of match model
• Custom service
• Changes to repeated services
• BEA function point analysis
• Most common methods
• Overlap
• Estimation of quality/price changes

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Services Producer Price Index

• Outsourcing issues
• Pricing based on working time (charge out rates)
• Do charge out rates represent poor estimates of
  prices when companies outsource or contract out
  parts of a computer services job to a
  subcontractor (off shore or not, affiliated or
  not)?
• If the charge out rates do not reflect the price
  to the client, then they are not appropriate for
  SPPI (same as list price can only be used if
  transactions actually occur at that price)

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Services Producer Price Index

• Outsourcing issues
• Pricing based on working time (charge out rates)
• If the service stays the same and charge out
  rates remain the same, then there is no price
  change even though there are lower input costs
• If service stays the same and charge-out rates
  are lowered due to outsourcing, then this is a
  price decline

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Services Producer Price Index

• Outsourcing issues
• Pricing based on working time (charge out rates)
• If there is a change in service (violation of
  matched model), need to quality adjust to isolate
  the price change from quality change, based on
  the change in the service provided not due to
  outsourcing

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Services Producer Price Index

• Outsourcing issues
• Pricing based on working time (charge out rates)
• If the service changes due to outsourcing, on
  what should the quality adjustment be based? Can
  a reliable value be estimated for quality
  adjustment?

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Summary of Countries Measuring Computer
Programming, Consultancy andRelated Activities
From the Voorburg Group Country Progress
Report 2007 (18 countries reporting) In
development