Statistics New Zealand has estimated that since 1996 increases in outputs of the public sector have largely been associated with increasing labour inputs. In the education sector, for example, the average annual increase in output of 1.0% between 1996 and 2015 was composed of average annual labour input growth of 2.5% while labour productivity fell on average by 1.5% per annum. These data use standard aggregate productivity methods and are not part of the National Accounts. They involve no explicit quality adjustment. This is important as it is difficult to fully understand productivity data (especially trends over time) without considering the impact of changes in quality.
Yet while important in principle adjusting public sector productivity data for quality changes is complex in practice. As an example, the United Kingdom Office for National Statistics (ONS) has had to revise its approach to quality adjusting education quantity when practices regarding students sitting exams changed. This paper thus estimates a range of quality adjusted productivity measures and discusses the benefits and risks of different approaches (e.g., regarding teacher salaries, students’ performance in tests, or impact on earnings). The measures are illustrated with data on schools.