1. General
This publication presents summaries of labour productivity, unit labour costs and return
on capital in the business sector for the years 2000-2003.
Data are presented on the business sector and the entire economy, regarding the
following subjects: changes in unit labour costs, labour productivity, distribution of
income between labour compensation and return on capital, capital stocks, return per
capital unit, and wages from the worker’s perspective.
In addition to the data describing developments in the entire economy, data are also
presented for the following industries: manufacturing, agriculture, construction and public
services. The tables also show the relationship between various aggregates; e.g., gross
and net product, product at market prices and at basic prices, labour costs at the
national and local levels, etc.
The data presented in this publication is based on data from 1995 input output tables.
Similar publications dealing with the same topics were published in the Supplement to
the Monthly Bulletin of Statistics, No. 5, 1995 and in Current Statistics, No. 15, 1996; No.
36, 1997; No. 33, 1998; No. 23, 2000; No. 25, 2001; No. 17, 2002 and No. 14, 2003.
Previous reports were issued for the years 1969-1993 by the Institute for Research on
Output and Income. The executive board of this institute included representatives from
the Manufacturers’ Association, Histadrut, Bank of Israel, Ministry of Finance, Ministry of
Economy, Israel Institute of Productivity and the Central Bureau of Statistics.
2. Definitions and Explanations
2.1 Definitions and Methods used in Preparing Estimates for the
Business Sector and the Whole Economy
The National Accounts for 1995 and onwards were based on the new
system of national accounts - SNA93 - prepared by five international
organizations: U.N, I.M.F, World Bank, OECD and EUROSTAT, and
presented in System of National Accounts, 1993, Commission of the
European Communities, International Monetary Fund, Organization for
Economic Cooperation and Development, United Nations, World Bank,
Brussels/Luxembourg, New York, Paris, Washington D.C., 1993.
Domestic output at basic prices is the value of goods and services
produced by factors of production employed in Israel after deduction of net
taxes on products.
Gross domestic product at market prices is the value of goods and
services produced by the factors of production employed in Israel, after
deduction of intermediate consumption and before deductions are made for
consumption of fixed capital. This value is equal to the sum of private and
general government consumption and of gross capital formation (private
and public) plus net exports of goods and services.
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Net domestic product at market prices is the gross domestic product at
market prices, after deduction of consumption of fixed capital at renewal
prices.
Net domestic product, at basic prices, equals the net domestic product
at market prices, after deduction of consumption of fixed capital and net
taxes on products.
Net domestic product, at factor cost prices, equals the net domestic
product at market prices, after deduction of indirect taxes and addition of
current subsidies. The net domestic product at factor cost prices, equals
the amount of domestic income from wages and other income.
Taxes on production and imports consist of taxes on products payable
on goods and services when they are produced, delivered, sold,
transferred or otherwise disposed of by their producers or importers.
Taxes on products: taxes that are levied per unit of goods or services.
The tax is a specific amount of money per unit of quantity of goods or
services when they are produced, sold, imported, exported, transferred or
used for own capital formation.
Other taxes on production: all taxes except taxes on products that
enterprises incur as a result of engaging in production such as taxes on
payroll, recurrent taxes on land and buildings, business licenses, stamp
duties, taxes on international transactions etc.
Subsidies consist of all grants on current account given by the
government and the local authorities to private industries and public
corporations. In addition to the direct current subsidies, this item also
includes the subsidy component in loans, which are granted by the
government to producers under preferred conditions (lower than market
interest rate), for financing current activities. However, the subsidy
component embodied in non- recurrent loans or in loans which are not
given on a regular basis, is not included in this item. The grant components
in these loans are defined as capital transfers.
Subsidies on products: subsidies payable per unit of goods or services
produced, sold, imported, or used in any other way. These subsidies can
be calculated as a specific amount of money per unit quantity, as
percentages of the price, etc.
Net domestic product (NDP) at basic prices of the business sector
includes the product of the following industries: Agriculture, Forestry and
fishing; Manufacturing; Electricity and water; Construction; Commerce,
Accommodation services and restaurants; Transport, Storage and
communications; Finances and business; and Personal and other services.
The business product includes the product of all enterprises owned
privately or publicly, including those not organized as companies, such as
the Government Printing Office. The business product does not include the
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product of the government, local authorities, non-profit institutions and
housing services owned by the residents.
This publication deals with developments in labour costs per product unit
and the distribution of income between compensation of employees and
operating surplus in the business sector. The business sector includes
the following industries: Agriculture, Manufacturing, Construction, Electricity
and water, Transport, Commerce, Finances, and Business and personal
services. It does not include government services, non-profit institutions
services, and housing services. The analysis was limited to the business
sector since the product of government and non-profit institution services is
compensation of employees. Housing services product is the imputed
product for employees and non-employees from capital in their possession.
The inclusion of these industries would have distorted the ratios between
labour costs per product unit and the division of income between
compensation of employees and operating surplus.
Net domestic product at constant prices: estimates at constant prices
were compiled for each of the components of national expenditure at
market prices (consumption, capital formation and foreign trade items), and
the total product was obtained as the sum of the components at market
prices.
Wages and Salaries are defined as remuneration in cash or in kind by the
employer to the employee for work carried out during the period of the
report, including wages based on units of work time and on a monthly
salary.
Wages and salaries include all types of gross payments, as specified
below:
-
Basic wages, cost of living allowances, seniority payments,
back pay, advance payments, overtime, on-call and shift
allowances.
-
Incentive pay, bonuses and special payments such as
education and proficiency allowances, “13th month” salary,
and severance pay, unused sick leave, etc.
-
Transportation
allowance,
vacation
allowance,
car
allowance, telephone compensation, per diem expenses,
clothing allowance, etc.
-
Payments in kind (only those subject to income tax), such
as: meals, housing services, holiday gifts, etc.
Supplementary expenses for wages and salaries/employer’s social
contribution include social contributions payable by employers, such as:
actual contributions to the National Insurance Institute, pension plans,
provident funds, study funds, etc. In addition, these expenses include
imputed contributions to pension plans for employees, which derive from
the employer’s obligation to pay the workers’ retirement pensions instead
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of contributing to pension funds; e.g., imputed contributions to budgetary
pension schemes for civil servants.
Taxes on wages and salaries are levied on employers for wage and
salary expenses, such as payroll tax and employers’ tax.
Other components of labour costs are expenses for vocational training,
welfare, recruiting workers, and providing work clothes, maintaining a
cafeteria, payments to professional organizations, etc.
Compensation of employees is defined as the total expenditure for
wages and salaries and supplementary expenditures for wages and
salaries.
Compensation of non-employees (employed persons who are not
employees – employers, self-employed persons, members of cooperatives,
kibbutz members, and unpaid workers in household enterprises) is the
imputed value estimated as the number of work hours multiplied by the
average compensation of employees per hour in the business sector.
Compensation of employed persons includes compensation of
employees and the imputed value of compensation of non-employed
persons.
Labour Cost includes compensation of employees, taxes on wages and
salaries, and other components of labour cost. There may be cases in
which reported labour costs include only compensation of employees and
taxes on wages and salaries. In those cases as well, it is recommended to
classify the item as a labour cost for employees as well.
Estimates of compensation of employees were obtained by summing up
compensation of employees in each industry based on industry surveys
such as the Manufacturing Survey. For industries where surveys were not
conducted, estimates were obtained from administrative reports, such as:
employers’ reports to the National Insurance Institute or reports from the
Accountant General.
Capital stock includes tangible and intangible productive capital i.e. it does
not include non-productive capital and intangible financial assets. It also
excludes changes in stocks of raw materials, finished goods and work-inprogress.
Gross capital stock - According to the approach used in this survey,
capital stock is measured as an aggregation of all of the fixed assets
whose economic life has not yet ended. This stock increases every year by
the gross domestic investment and decreases by the value of assets
whose economic life has ended. Discard is deducted from fixed capital
stock (the investment in the first year of the economic life of any kind of
asset).
Net capital stock - In the net capital stock method, consumption of fixed
capital is deducted each year from the capital stock. For each type of
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asset, consumption of fixed capital is estimated as a fixed percent of the
original value depending on the length of the asset’s life - linear
consumption of fixed capital.
Compensation of labour and operating surplus - the net domestic
product at basic prices includes income from compensation of employees,
other taxes on production (net) and other income. Other income was
obtained as the remainder after deducting compensation of employees and
other taxes on production (net) from the product. Other income includes,
inter alia, an imputed remuneration for labour of non-employees. Nonemployees constitute about 20% of all employed persons in the business
sector. They include self-employed employers, members of cooperatives,
members of kibbutzim, and unpaid family members.
Operating surplus is calculated by deducting from the net domestic
product, at basic prices, compensation of labour and other taxes on
production (net). In the operating surplus, as in the product at basic prices,
capital grants, which are about 2% of the business product, were not
included. There is an upward bias in the estimate of compensation for
labour and simultaneously, there is a downward bias in the estimate of
operating surplus. This is because owners of small private companies
record part of their income as income from wages.
The rate of return per capital unit is calculated as the ratio between the
share of the operating surplus from the product and the ratio of capital to
product.
Alternative calculation of operating surplus - as mentioned above, net
domestic product is obtained after deducting consumption of fixed capital
at renewal prices from the gross product. By contrast, consumption of fixed
capital is calculated at historical purchase prices in the financial reports of
enterprises. Consumption of fixed capital rates at renewal prices reaches
10% of the gross business product. The estimation was based on an
assumption of the life span of various capital assets (buildings, equipment
by industry) and on the yearly decrease in their value as well as on
assumptions of changes in prices of various capital assets. As a result, the
reliability of the estimate of consumption of fixed capital is limited. Table 16
presents an alternative calculation of operating surplus before deduction of
consumption of fixed capital as a percent of the gross domestic product at
market prices.
Disposable income from work is obtained as the difference between total
gross income and deductions for income tax and for national insurance
payments. Gross wages were obtained from employers’ reports to the
National Insurance Institute and from other administrative sources,
whereas data on tax payments are based on tax collection figures, which
were obtained from the State Income Administration and the National
Insurance Institute. The estimates of disposable wages are of relatively
limited reliability, because they are based on data from various sources.
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Disposable wages in government ministries – another indicator of the
development of disposable income, albeit partial, appears in Table 16. This
table presents data on gross and net wages received by 80,000
government ministry workers who are paid through Malam Systems.
Employed persons - persons who worked at least one hour in the
determinant week in any work for wages, profit or other compensation; all
workers in kibbutzim (whether in services or other industries); family
members who worked in their family owned business and institution
workers who worked without pay for more than 15 hours per week; persons
temporarily absent from their regular work who didn’t seek other work.
Employees - persons who were employed by someone else for daily,
monthly or contractual wages or for any other compensation.
Estimates of the changes in the number of employed persons, employees
and work hours of employed persons and employees in Israel were usually
based on findings from the “Labour Force Survey” in Israel. The estimates
relating to residents of the Palestinian Authority who work in Israel are
based on the labour force survey of the Palestinian Authority. Before 1996
the estimates were based on family surveys in Judea, Samaria and the
Gaza Area and on Employment Service data. Estimates of the number of
foreign workers are based on the net entries to Israel of people from
developing countries who are not tourists, new immigrants, diplomats or
students.
The change in Labour Productivity is the change in net product per work
hour of employed persons.
The change in Capital Productivity is the change in the ratio of net
product to gross capital stock.
The change in Total Productivity is the change in the net product that is
not explained by the changes in capital stock or in work hours.
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2.2 Definitions and Methods used to Prepare Estimates, by Main
Industries of the Economy
2.2.1 General
This publication presents estimates of annual changes in the net product at
current and at constant prices, in labour costs, wages and work hours and
changes in labour costs per product unit for the economy’s main industries.
Estimates for these industries are sometimes based on surveys of one
industry, if those surveys are considered to be more reliable than the
estimates for the same industry that were included in the accounts for the
whole economy. For example, the estimates of Manufacturing were based
on “Manufacturing Indices” (see below) and not on the industry data
according to Labour Force Surveys, which were a source for estimates of
employees in the whole economy.
2.2.2 Agriculture, Forestry and Fishing
Estimates of the net domestic product for Agriculture at current and
constant prices are obtained annually by deducting the estimate of
purchased input (from other industries) from the estimate of agricultural
output.
The estimates of changes in labour costs and in wages for Israeli workers
were based on reports to the National Insurance Institute. The changes in
wages of employees from the Palestinian Authority were based on reports
of the Payments Administration of the Employment Service and on the
labour force survey of the Palestinian Authority.
The data on Israeli employed persons, employees and work hours were
obtained from the Labour Force Surveys in Israel. Data on employed
persons, employees and work hours from the Palestinian Authority are
based on the Labour Force Survey of the Palestinian Authority. Data on
wages and employment of foreign workers were obtained from National
Insurance reports and from estimates of foreigners who work without
permits. These estimates are based on records of the number of tourists
from developing countries who enter and leave the country.
Even though there is a large sampling error in labour force surveys, data
from this source are preferred over figures reported to the National
Insurance Institute. This is because National Insurance Institute data on
employees in each industry are obtained as a sum of all employees
according to employers’ reports. These are reports in which each employer
reports on all employees employed in a certain month. Since most work in
Agriculture is part-time and employees work in more than one place during
a given month, they are recorded in the report as employees of each
employer they worked for.
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2.2.3 Manufacturing
The estimates of changes in labour costs, in the number of employees, and
in the number of work hours of employees were based on the
Manufacturing and Crafts survey for the years in which a survey was
conducted, as well as on manufacturing indices for other years. In order to
prepare these indices, monthly estimates of changes in the manufacturing
product, revenue, employment, and wages were calculated. The frame of
surveyed establishments encompassed all establishments with at least one
employee. The sample included about 2,000 establishments that employ
about 70% of all employed persons in manufacturing.
Estimates of workers hired through employment agencies were added to
the employment data obtained from the Manufacturing and Crafts Survey.
In addition, it was found that the number of employees from the Palestinian
Authority who work in manufacturing, based on the labour force survey of
the Palestinian Authority, is larger than their number in the manufacturing
indices. An estimate of workers from the Palestinian Authority who were
not reported in the manufacturing indices was added to the employment
estimate.
The percent of change in work hours of employees was used as an
indicator of the percent of change in the number of work hours of employed
persons. It is assumed that in this calculation method, the error is smaller
than that of the industry data on changes in work hours of employed
persons according to the Labour Force Surveys, which have a large
sampling error.
Changes in the product at current and constant prices were derived from
summaries of the Manufacturing and Crafts survey. The output figures do
not include revenue from activities outside the Manufacturing industry. In
addition, the values of stocks were adjusted, using appropriate price
indices so as to exclude capital gains from the value of the change in
stocks.
The changes in total labour costs were calculated on the basis of data from
the Manufacturing and Crafts survey during years in which a survey was
conducted, as well as on the basis of monthly manufacturing indices in
other years.
2.2.4 Construction (Building and other Construction Works)
The changes in net domestic product of the Construction industry at
constant prices were obtained using changes in the main components of
the industry’s output: investments in structures and in other construction
works (laying of roads, pipes, railroad tracks and cables, as well as other
ground works), and construction for defense purposes.
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For this calculation, it was assumed that there is a constant input-output
ratio, based on the 1995 Input-Output tables, in the main types of
construction.
Labour costs, employed persons and work hours: Estimates were based on
data obtained from the National Insurance Institute. The changes in wages,
number of employees, and number of work days of employees from the
Palestinian Authority were estimated on the basis of the labour force
survey of the Palestinian Authority. Data on the changes in wages and
employment of foreign workers were obtained from National Insurance and
estimates of foreigners who work without permits.
2.2.5 Public Services
Public services include: the government (including the Ministry of Defence),
local authorities, national institutions and non-profit institutions (such as:
Hadassah, the various sick funds, the Hebrew University, etc.).
Enterprises owned by these institutions are not included, such as: Ma’atz,
the Ports and Railways Authority and the Postal Authority, which were
defined as part of the business sector.
The changes in net domestic product at current prices in this sector are
equal to the changes in payments of labour costs. Thus, the change in
labour costs per work hour equals the change in product per work hour.
Estimates of changes in labour costs, wages, and number of employees
were based on reports published by the various institutions (government,
national institutions, local authorities and non-profit organizations) as well
as on supplementary data obtained through questionnaires.
2.2.6 Commerce, Accommodation Services and Restaurants
Estimates of net domestic product of Commerce and Accommodation
services and restaurants for the base year were based on surveys of
revenue and inputs that were conducted in the process of preparing the
input-output tables. For the years in which a Trade and Services Survey
was conducted, the estimates were calculated by extrapolating the data
from the base year from the data of that survey. For the years in which a
Trade and Services Survey was not conducted, the estimates were based
on extrapolation of data on VAT revenue or from hotel surveys. The
product at constant prices was obtained by deflating the product at current
prices by appropriate price indices.
2.2.7 Transport, Storage and Communications
Estimates of net domestic product of Transport, Storage and
Communication were obtained in some industries by analyzing financial
reports. In the case of buses, taxis and trucks, the estimate of the product
is based on calculation that takes the amount of traveling into account.
Changes of product at constant prices were obtained from indicators of the
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output, such as: kilometres traveled by taxis and trucks, loads hauled by
ships, number of passengers in Israeli airlines.
2.2.8 Financial and Business Services
For Banking Services, the product was obtained from a review of the
financial reports of the banks, which is published by the Supervisor of
Banks in the Bank of Israel. The output of banks consists of two
components. One component of the output is fees, that banks charge their
customers for services provided. The other component stems from the
practice of banks to charge a higher interest on loans they extend, than the
interest they pay on deposits. The product is the difference between the
banks’ output and inputs. The output from fees at constant prices is
obtained by deflating output at current prices by a bank services fee index.
The output from interest margins at constant prices is the difference
between interest on loans at constant prices and interest on deposits at
constant prices. Interest on loans at constant prices is obtained by
multiplying the loans by the interest on loans in the base year. Interest on
deposits at constant prices is obtained by multiplying the deposits by the
interest on deposits in the base year. Inputs at constant prices are obtained
by deflating inputs at current prices by the CPI.
For Insurance services, calculation of the product was based on a review of
the financial reports of the insurance companies prepared by the
supervisor of insurance at the Ministry of Finance. The output of the
insurance industry is the sum of the net premiums paid by customers and
the profits on investing the actuarial reserves. The product is the difference
between the companies’ output and the inputs of the insurance companies.
The product of the insurance companies at constant prices was obtained
by deflating the product at current prices by the implicit price index of the
business product.
Estimates of the product of Business Services at current prices were based
on surveys that measured revenues and inputs for the purpose of
preparing input-output tables. For years in which a Trade and Services
Survey was conducted, the estimates were based on extrapolation of the
data for the base year using data from that survey. In years in when a
Trade and Services Survey was not conducted, the estimates were based
on extrapolation of data of VAT revenue. The product at constant prices
was obtained by deflating the product at current prices by appropriate price
indices.
2.3 International comparisons
This publication includes a table that present international comparisons. Table 21
presents the share of different industries in the GDP of various countries. The source of
data for these tables is the Organization for Economic Cooperation and Development
OECD.
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