Statistical Needs in Eastern Europe

established for these products. In addition, those
instances in which consumers are forced to sub-
stitute an available good for an unavailable,
preferred good of lower quality and cost are not
addressed by this method.

In hedonic analysis, a price series for a prod-
uct is regressed on various quality characteris-
tics and time. The coefficient on the time
variable is then used in estimating prices ad-
justed for quality. Gardner advises caution in
the use of this method and the interpretation of
its results, particularly during the transition pe-
tiod. Until market economies are established,
consumer prices may be related to the resource
costs of producing a product, but will not re-
flect user valuations or product quality. The
coefficient estimates from hedonic analysis,
then, would reflect cost changes, rather than
consumer value.

If lower priced, lower quality goods become
more available as the transition progresses,
hedonic analysis using pre- and post-transition
data may imply a decline in quality when the
consumer’s valuation of quality has actually
improved.” This wider availability would re-
sult in a decline in the forced substitution of
higher priced, higher quality goods for the more
desirable lower priced, lower quality goods.”!

Labor force statistics. In his paper on unem-
ployment and job search in the socialist econo-
mies in transition, Paul Gregory states that under
central planning, unemployment simply ceased
to exist—by definition. Workers were guaran-
teed employment, and the state was responsible
for securing that employment. Entrance of indi-
viduals into the work force from middle and
higher level educational institutions was guided
by administrative authorities. Because the
planned economy provided employment oppor-
tunities for all, a nonworking individual was
either a “parasite” or in the process of changing
jobs.” Frequent labor turnover was viewed as
detrimental to economic efficiency.”

The planned administration of the economy
resulted in inefficient sectors of the economy
being preserved rather than restructured. Em-
ployment patterns in the historically planned
economies thus are skewed toward heavy in-
dustry and agriculture, and away from services.”4
Employment under central planning was concen-
trated almost exclusively in state enterprises, with
a very limited degree of private employment.”

Several labor experts participating in the con-
ference believed that the inexperience of the
historically planned economies with functional
labor markets will make the difficulties of ad-
justing to a market economy more severe. Work-
ers who are familiar with a job-rights environ-

22 Monthly Labor Review March 1992

ment may have trouble adapting to a competi-
tive labor market. And because the worker was
not previously responsible for searching out
employment, job-search skills may be poor.

The consensus of the experts at the confer-
ence was that the transition would result in
massive unemployment related to the restruc-
turing of the economy. Because the planned
economy resulted in the continued existence of
inefficient sectors, the structure of the economy
simply cannot be maintained in a competitive
market environment.” Restructuring is expected
to occur in terms of the relative importance of
various sectors of the economy, the skills and
occupations employed in the economy, and the
types of firms operating in the economy.

Gur Ofer of Hebrew University, in present-
ing discussant comments on a paper by Saul
Estrin and Christopher Pissarides, suggested that
this structural unemployment will be aggravated
by the lack of labor market institutions and
market behaviors to move workers quickly from
one employer to another.’ The absence of a
functioning housing market further limits labor
mobility. This massive unemployment will be a
primary issue during the transition, from a po-
litical as well as a statistical point of view. Ofer
noted that unemployment policies considered
adequate in the West may be received differ-
ently by workers who previously were guaran-
teed a job.

Citing the enormity of the problems antici-
pated in the labor markets and the pressing
needs that policymakers will have for informa-
tion on unemployment during the transition.
several experts advised Eastern Europeans to
adopt existing, internationally accepted labor
statistics definitions and practices, in order to
produce internationally comparable statistics.

Estrin and Pissarides, both of the Centre for
Economic Performance, the London School of
Economics, presented a paper on unemploy-
ment and wage statistics in Eastern Europe, and
discussed the possible role of the Labor Force
Survey.”* The Labor Force Survey, in addition
to administrative data sources, is used in the
European Community to obtain information on
labor market activities. The survey has the ad-
vantage of collecting information from all po-
tential labor force members, including
discouraged workers and those not receiving
unemployment benefits but seeking a job. Ad-
ministrative data, such as the number of unem-
ployed receiving benefits, can be used to check the
consistency of the unemployment statistics,

Ofer, in discussing the paper by Estrin and
Pissarides, suggested that the existing house-
hold surveys of the Eastern European countries
might be used until the more complicated and



cess of economic transition, based on the experiences
of the Polish Central Statistical Office.

These papers, in conjunction with those refer-
enced in the above report, complete the complement
of papers presented at the Conference on Economic
Statistics for Economies in Transition: Eastern Eu-
rope in the 1990's. Copies of all papers presented at
the conference are available on request from the
U.S. Bureau of Labor Statistics. In addition, a vol-
ume containing the conference proceedings is being
prepared by the Bureau, and will be available in
early 1992.)

Abstracts

Bruno Dallago, ? “Second and Irregular Economy
in Eastern Europe: Its Consequences for Economic
Transition.”

This paper suggests that national statistics may
be underestimated during transition from central
planning to a market system because of unregistered
activities in the “second economy.” In addition,
changes in the second economy may result in a
structural distortion of statistical aggregates during
the transition. Estimates of costs, incomes, and em-
ployment may change due to the second economy's
inner movement and transformation, rather than to
changes in economic performance. The paper con-
cludes that careful analysis of the second economy's
structure and dynamics is essential to the correct
assessment of developments during transition.

The second economy in centrally planned econo-
mies is defined as consisting of all activities that
escape the direct control of the state. The second
economy includes the regular private sector and the
irregular economy; the irregular economy includes
only those economic activities that evade or avoid
the society's laws governing those activities. As
economies move from central planning to market
activities, the regular private sector becomes part of
the official economy, and only irregular economic
activities remain in the second economy.

The paper describes the second economy in cen-
trally planned systems prior to transition; reviews
measurement methods and estimates of the irregular
economy in Soviet-type economies prior to transi-
tion; discusses the causes, role, and consequences of
the second economy in centrally planned econo-
mies; describes the process of privatization and struc-
tural transformation of the economy during the
transition to a market system; and assesses the con-
sequences of the second economy for the transition.

Robert B. Koopman, “Agriculture’s Role During
the Transition from Plan to Market: Real Prices,
Real Incentives, and Potential Equilibrium.”

The agricultural sectors in centrally planned
economies have played a large role in lackluster
economic performance, and chronic food shortages
have contributed to discontent with the system.
Koopman suggests that the agricultural sector pro-
vides an interesting case study of the effective price
policy of centrally planned economies, the interac
tion of this price policy with the planned economic
system, and the future agricultural potential of his-
torically planned economies under market reform.

Previous research analyzing the causes of food
shortages had generally been limited to studying
production shortfalls. Koopman suggests that pro-
duction problems may not be the largest contributor
to food shortages. Instead, producers’ supply re-
sponses appear to be consistent with the effective
“incentive price policy” environment they face.

Koopman constructs and estimates a simulation
model of the world’s agricultural economy to ana-
lyze the potential impact of market-style reform in
the centrally planned economies. The simulation
model is based on estimates of support to producers
and consumers and assumptions about the slope,
shape, and location of supply and demand curves.
The model is a static, partial equilibrium net-trade
model, consisting of constant-elasticity supply and
demand curves for each of 22 commodities in 36
separate countries or re; .

The simulation model is solved under three dif-
ferent scenarios—the first reflects rapid productiv-
ity gains in agriculture and soft consumer demand,
the second reflects no productivity gains, and the
third reflects falling incomes combined with no pro-
ductivity gains. Each of the scenarios rebuilds a
previously planned economy into a reasonable ap-
proximation of a market economy. Supply and de-
mand elasticities are assumed to move from being
relatively inelastic under planning-based economies
to being relatively elastic under market-based sys-
tems. Supply and demand curves are shifted to ac-
count for expected productivity gains and excess
demand. After removing policy price wedges, the
model solves for a new equilibrium, with a solution
horizon of 5 years.

Results of this study suggest that agricultural
production in the centrally planned economies was not
simply deficient, but a rational producer response to a
relatively unfavorable price policy environment. In
addition, Koopman finds that overstimulated con-
sumer demand contributed more to food shortages
under central planning than did shortfalls in supply.

Manfred Melzer and Reiner Staeglin.* “The Role of
Economic Statistics in the German Unification Process.”

The former German Democratic Republic was
united with the Federal Republic of Germany on
October 3, 1990. Melzer and Staeglin provide a
remarkable overview of the unification process from
the standpoint of the statistical system. The authors
critically review the statistical system of the former
East Germany, to illustrate the statistical issues ac-
companying the unification process. They conclude
that the rapid pace of the unification as well as the
economic difficulties of the former East Germany
result in enormous statistical problems. In the au-
thors’ view, the need to implement the West Ger-
man statistical system as quickly as possible in the
former East Germany becomes even more urgent
when longstanding deficiencies in the latter’ statis-
tical system are considered.

While acknowledging that the necessary infor-
mation systems and economic statistics cannot be
developed in a short time, Melzer and Staeglin point
out that some compromise solutions can be devel-
oped to provide data for policymaking during the

Monthly Labor Review March 1992. 27


Statistical Needs in Eastern Europe

A number of conference speakers asserted
that the statistical offices would benefit greatly
by improving the technology available to per-
form the various tasks involved in producing
statistical output. With regard to collecting and
providing basic information on private enter-
prises, Duncan also suggested that moving
quickly to update technology would be ex-
tremely valuable to private entrepreneurs.

Interpretation of statistics

Several experts noted that statistics for an
economy newly introducing market activities
will have very different interpretations than will
those for an established market economy. Be-
cause prices in the historically planned econo-
mies prior to the transition were centrally
determined, rather than determined by the mar-
ket, pretransition statistics—such as the growth
rate of output—based on these prices will be
distorted. System-related economic problems,
such as inflation and unemployment, cannot be
measured using pretransition data because the
forms such phenomena took in the centrally
planned economies were quite different from
those observed in market economies.

The measured rate of inflation may increase
dramatically, simply because phenomena ap-
pearing as shortages and repressed inflation ina
centrally planned economy would now be mea-
sured in the framework of a market economy.
As enterprises become more efficient in the
market economy, and as some inefficient enter-
prises cease to function, unemployment may
increase. Output of some goods and services
may fall, as market forces begin to determine
production decisions. Statistical measures may
reflect changes in these and other economic
variables which would be interpreted as adverse
news ina fully formed market economy, but which
are consistent with a healthy transition process
for the historically planned economies.

Because intertemporal comparisons of data
produced under the old and new statistical sys-
tems will be difficult, assessing the performance
of an economy in transition will require careful
interpretation of economic indicators. Measures
of output growth, inflation, and unemployment
in the economy in transition may be biased if
the statistical system fails to accurately capture
developments in the rapidly growing private
sector. Moreover, managers of surviving state
enterprises may have an incentive to understate
their performance in order to retain subsidies or
justify price increases.

In his paper, Marer proposes supplementing
traditional indicators of economic performance
with nonconventional measures during the tran-

24 Monthly Labor Review March 1992

sition period. These supplemental measures in-
clude the extent of shortages of key goods and
inputs; the degree of change in the legal frame-
work, such as the legality of private ownership;
the extent of the growth and importance of the
private sector; the speed of deconcentration in
various sectors of the economy; the extent of
establishment and growth of market institutions;
and the levels and shares of subsidies and taxes."

Future statistical policies

During the final session, the heads of the cen-
tral statistical offices in the seven Eastern Euro-
pean countries represented at the conference
expressed their views on the issues raised and
discussed future statistical policies in their own
countries. Gyorgy Vukovich, head of the Cen-
tral Statistical Office of Hungary, noted that the
Eastern European countries have only 2 to 3
years to establish an operational statistical sys-
tem corresponding to the requirement of a mar-
ket economy. By comparison, the development
of Western statistical systems for market econo-
mies took place over several decades. Vukovich
also emphasized the following long-term pri-
orities for central statistical offices: assess the
needs of new groups of data users; build new
telationships with data sources; obtain legisla-
tion defining the role of the statistical office
and establishing the independence of that office
from government authorities; and improve the
credibility of the central statistical office.

Bohdan Wyznikiewicz, head of the Central
Statistical Office of Poland, cited priorities as
the implementation of the system of national
accounts methodology; improvements in price
statistics, and the introduction of unemploy-
ment and financial statistics. His recommended
adjustments to statistical methodology included
replacing censuses with sample surveys, reduc-
ing the extent of direct reporting by enterprises
to the statistical agency, and ensuring the inter-
national comparability of data. The problems
he anticipated in achieving these priorities in-
cluded the lack of experienced staff and the
need for modem technology.

Vadim Kirichenko, head of Goskomstat, em-
phasized the relationship between real changes
in the economy and the development of a new
statistical system supporting these changes. As
real changes occur in the economy, changes in
the statistical system become viable. Educating
data users, respondents, policymakers, and sta-
tistical staff in new perspectives on statistic:
a priority. These new perspectives include the
need for independence of the statistical agency
from government authorities; the policy of mak-
ing statistics available to all groups of users



expensive labor force surveys could be imple-
mented. In his comments, he concluded that the
extent and impact of unemployment resulting
from restructuring during the transition will
depend on the macroeconomic policies devel-
oped to ameliorate unemployment, including
labor compensation, unemployment insurance,
and retraining programs. He recommended that
any subsidy policy should benefit new employ-
ers, rather than propping up inefficient old em-
ployers, to minimize unemployment.

Household income surveys. The social impact
of the transition from a planned to a market-
oriented economy can be analyzed using infor-
mation from household budget surveys.
Obtaining information on the effects of the tran-
sition on various social groups is clearly an
important priority to the Eastern European coun-
tries. The existing household surveys in these
countries were generally viewed by conference
participants to be quite useful. However, in his
presentation on the future of household income
surveys in Hungary, Laszlo Vita of the Hungar-
ian Central Statistical Office notes that the sur-
veys should not be the only source of data on
the social impact of the transition. Vita suggests
that administrative data sources, including tax
records, be used to supplement the survey data.”

Those administering the surveys face many
challenges in providing the necessary informa-
tion on the social impact of the transition. Bar-
bara Torrey presented a paper evaluating
household surveys of economic status in East-
ern Europe, and discussed a number of these
challenges.” As the private sector of an economy
in transition grows, the household budget sur-
vey will need to increase the population repre-
sentation of the private economy. Income
definitions will have to be revised to include
the income of the private entrepreneur. And
because the survey is voluntary, attention to-
ward encouraging participation in the survey
and assuring respondents of the confidentiality
of their data will be vital.

Institutional changes in the society as a re-
sult of transition, such as the introduction of a
general personal tax, social security measures,
pension plans, and unemployment benefits, will
necessitate some changes in the household bud-
get questionnaires. The surveys also will have
to be modified to account for the fact that ben-
efits previously provided to workers by em-
ployers, such as health care, subsidized housing,
job training, higher education, and social ser-
vices, may now be provided by the government
or the private market.*' In a paper on the use of
household budget surveys in evaluating social
consequences of transition, M. Lidia Barreiros

of Eurostat reviews the household budget sur-
veys of the European Communities and provides
suggestions for the future development of such
surveys in the Eastem European countries.*?
During the transition, information on the rap-
idly changing economy’s impact on households
may be needed more quickly than the large
household budget surveys are able to provide it.
Torrey’s presentation, as well as comments by
several other experts participating in the con-
ference, suggests the use of small, quick sur-
veys to supplement the household budget survey
and provide timely information for social
policymaking during the transition.

Private enterprise data. Joseph Duncan of The
Dun & Bradstreet Corporation presented a pa-
per on improving information systems for pri-
vate business in Eastern Europe.* In his
presentation, Duncan notes that the role of gov-
ernment will shift during the transition process
from one of controlling enterprises and eco-
nomic activity to one of supporting the devel-
opment of the market economy. Developed
market economies rely on a framework of insti-
tutions providing necessary information and
support to private enterprises. This framework
includes legal institutions, business registers,
and private organizations, such as chambers of
commerce, that provide information on private
enterprise activities. Duncan suggests that the
development of the necessary legal institutions
to support the market economy must be a prior-
ity. In addition, because of the importance of
foreign trade to the developing market econo-
mies, the appropriate exchange rates need to be
determined for their currencies.

Business registers provide basic data on the
names and addresses of private enterprises, as
well as more detailed data on size of the enter-
prise and its financial assets. This information
assists private entrepreneurs in finding custom-
ers and suppliers, and in operating in the mar-
ketplace. In his presentation remarks, Duncan
suggested that the central statistical office is the
appropriate agency to maintain and distribute a
business list of private enterprises. The business
list should be confined to the limited basic data,
including name, address, and type of enterprise,
and would be available to all upon request.

More detailed data, such as financial data on
individual enterprises, could be made available
by private organizations such as industry trade
groups, or marketed by private companies simi-
lar to Dun & Bradstreet, rather than being gath-
ered by the statistical office. This would allow the
government statistical agency to assure enterprises
that the data it releases in an identifiable fashion
would be limited to very basic information.

Monthly Labor Review March 1992 23


Statistical Needs in Eastern Europe

Bureau’s Eastern European assistance program, funded by
the Support for Eastern European Democracies (SEED)
Act, was initiated in November 1989. Bureau staff trav-
eled to Warsaw and Budapest to meet with staff from the
respective central statistical offices, discuss the type of
assistance needed, and provide guidance on various statis-
tical issues. Top officials of the Central Statistical Office
of Poland, in turn, visited the Bureau in September 1990
to participate in further discussions. Also staff from the
central statistical offices of Poland, Hungary, Czechoslo-
vakia, and the former U.S.S.R. are participating in various
seminars and workshops conducted by the Bureau's Divi-
sion of International Training and Cooperation.

“Statistical agency heads from Czechoslovakia, Yu
goslavia, Bulgaria, and Romania presented somewhat
briefer comments on the conference discussions and fu-
ture policy directions from the floor of the conference.

5 Paul Marer, “Conceptual and Statistical Problems of
Comparative Measurement of the Economic Performance
of Eastern European Countries in Transition,” Discussion
Paper, February 1991, in Conference on Economic Statis-
tics for Economies in Transition: Eastern Europe in the
1990's, pp. 1-2

* Wbid., p. 1.

7 The conference proceedings volume provides a
broader discussion of these and other measurement con-
cerns.

* Abram Bergson, “Real National Income Measure-
ment: In Soviet Perspective,” Discussion Paper, February
1991, in Conference on Economic Statistics for Econo-
mies in Transition: Eastern Europe in the 1990s, pp. 4-5

° Ibid., pp. 3-4.

© Ibid., pp. 9-10.

" [bid.

” [bid.

"3 Steven Rosefielde, “Comments on ‘Real National
Income Measurement: In Soviet Perspective’,” discussant
remarks, February 1991, in Conference on Economic Sta-

tistics for Economies in Transition: Eastern Europe in the
1990's, p. 12.

Leszek Zienkowski, “Statistics in Transition in the
Economy in Transition (the Potish Case),” Discussion
Paper, February 1991, in Conference on Economic Statis-
tics for Economies in Transition: Eastern Europe in the
1990's, p. 2.

'S Ibid., p. 11

'S Alan Heston and Robert Summers, “Consequences
of Expanded Availability of Goods and Services for Price
Collection and Measurement of Trends in Output and
Inflation,” Discussion Paper, February 1991, in Confer-
ence on Economic Statistics for Economies in Transition,
Eastern Europe in the 1990's, p.

” Paul Armknecht, unpublished memorandum (U.S.
Bureau of Labor Statistics, June 1990).

'S The reader is referred to the conference proceedings
for a discussion of whether this phenomenon is a form of

APPENDIX:

 H. Stephen Gardner, “Product Quality and Price In-
flation in Transitional Economies,” Discussion Paper, Feb-
ruary 1991, in Conference on Economic Statistics for
Economies in Transition, Eastern Europe in the 1990's, p.

» Ibid., pp. 10-11.

2 Paul Armknecht of the U.S. Bureau of Labor Statis-
tics suggested that cross-sectional hedonic analysis, rather
than time series, might be useful in making direct quality
adjustments during the transition period.

» Paul R. Gregory, “Unemployment and Wage Statis-
tics in Eastern Europe and the Role of the Labor Force
Survey,” Discussion Paper, February 1991, in Conference
on Economic Statistics for Economies in Transition: East-
ern Europe in the 1990's, p. 2.

* Ibid., p. 4

* bid., p. 3.

% Ibid., p. 3.

® See Gur Ofer's discussant comments on Saul Estrin
and Christopher Pissarides, “Unemployment and Wage
Statistics in Eastern Europe and the Role of the Labor
Force Survey.” in the forthcoming conference proceed-
ings volume.

* Saul Estrin and Christopher Pissarides, “Unemploy-
ment and Wage Statistics in Eastern Europe and the Role
of the Labor Force Survey,” Discussion Paper, February
1991, in Conference on Economic Statistics for Econo-
‘mies in Transition: Eastern Europe in the 1990's.

® Laszlo Vita, “On the Future of Household Income
Surveys in Hungary,” Discussion Paper, February 1991,
in Conference on Economic Statistics for Economies in
Transition: Eastern Europe in the 1990's.

TM B, Torrey, T. Smeeding, W. Okrasa, and T. Garner,
“Household Surveys of Economic Status in Eastern Eu-
rope: An Evaluation,” Discussion Paper, February 1991,
in Conference on Economic Statistics for Economies in
Transition: Eastern Europe in the 1990's.

See Jacques van der Gaag's discussant comments on
B. Torrey and others, “Household Surveys,” in the forth-
coming conference proceedings volume.

fia Barreiros, “The Use of Household Budget
s in Evaluating Social Consequences of Transi-
tion,” Discussion Paper, February 1991, in Conference on
Economic Statistics for Economies in Transition: Eastern
Europe in the 1990's.

® Joseph W. Duncan, “Improved Information Systems
for Private Business in Eastern Europe,” Discussion Pa-
per, February 1991, in Conference on Economic Statistics
‘for Economies in Transition: Eastern Europe in the 1990's.

TM Mater, pp. 28-29.

%§ See Stephen E. Fienberg’s remarks during the panel
discussion “Statistical Foundations and the Market
Economy,” forthcoming in the conference proceedings
volume.

‘Institut National de la Statistique et des Etudes
Economiques (INSEE).

An overview in brief of additional issues

This appendix contains abstracts of four conference
papers. Three of the papers address some topics not
discussed in the above report: the impact of the
underground economy on the transition, agriculture’s

26 Monthly Labor Review March 1992

role during the transition, and statistics and the Ger-
man unification process. The fourth paper provides
a practical view of the statistical issues confronting
the Eastern European statistical offices during the pro-


Susan Powers

Susan Powers is a
supervisory economist in
the Division of
Productivity Research,
Office of Productivity and
Technology, Bureau of
Labor Statistics.

18 Monthly Labor Review

Statistical needs

in Eastern Europe

As the historically planned economies

of Eastern Europe undertake the transition
to the free market, the statistical agencies

of these nations face enormous challenges

s free-market reforms are introduced into
A formerly centrally planned econo-

mies of Eastern Europe,' the statistical
agencies of these countries face enormous chal-
Jenges. In the short term, policymakers will
need reliable statistics on the pace and impact
of the reforms, as each country embarks on the
tansition process. For the longer term, national
statistical agencies must anticipate and prepare
for the future statistical needs of the evolving
market economies, a process including the es-
tablishment or revision of methodologies, con-
cepts, and standards. Finally, restoring public
confidence in official statistical series is an im-
portant priority,

The U.S. Bureau of Labor Statistics, in co-
operation with Eurostat, the statistical office of
the European Communities, sponsored a Con-
ference on Economic Statistics for Economies
in Transition: Eastern Europe in the 1990's.
The conference, held February 14-16, 1991, in
Washington, focused on the immediate and longer
term challenges facing the Eastern European sta-
tistical agencies as they adapt to the increase in
free-market activities in their countries’ econo-
mies. This article discusses some of these chal-
lenges and insights gathered from the conference
on the best ways to meet them.

Conference overview

The Economies in Transition conference pro-
vided a forum for practical discussions of the
effects on economic statistics of political and
economic change in the Eastern European coun-

March 1992

tries.? More than 200 representatives of statisti-
cal agencies, academia, and professional orga-
nizations from 22 countries, including 53
Tepresentatives from 7 Eastern European coun-
tries—Poland, Hungary, the Soviet Union,
Czechoslovakia, Yugoslavia, Bulgaria, and Ro-
mania—participated in the conference.

Top experts and statisticians from the United
States, Western Europe, Canada, Australia, and
the Eastern European countries presented pa-
pers and participated in panel discussions. The
discussions focused on the immediate difficul-
ties in using available data and statistics during
the transition period, and the emerging needs
for new data and statistics as market reforms
take hold. Proposals were examined for funda-
mental changes in national statistical systems
to meet these needs.

At the conclusion of the conference, heads
of statistical agencies from Poland, Hungary,
and the U.S.S.R. participated in a panel discus-
sion. The agency directors addressed various
issues that had arisen during conference discus-
sions, and provided insights into future statisti-
cal policies in their respective countries.4 A
followup panel of renowned Western econo-
mists and statisticians provided a commentary
on the policy directions suggested by the East-
em European panelists.

Statistics and economic reform

The Eastern European countries are in varying
stages of economic transition from central plan-
ning to a market orientation. In his discussion


Statistical Needs in Eastern Europe

transition period. The authors elaborate on the data
needs of the unified Germany during the transition
period; the efforts under way at the Federal Statisti-
cal Office, the Deutsches Institut fiir Wirtschafts-
forschung, and other organizations to bridge the
information gap during the transition period; and the
anticipated timetable for establishing a new statisti-
cal information system in East Germany that is in
accordance with that of West Germany.

Ongoing efforts to provide data needed in the
transition period, as described by Melzer and
Staeglin, include the preparation of unofficial na-
tional accounts estimates for East Germany, West
Germany, and the united Federal Republic of Ger-
many by the Deutsches Institut. A Socio-Economic
Panel study, conducted for West Germany since
1984, was extended by the Institut in June 1990 to
include East Germany. This panel will provide (un-
official) representative and longitudinal data on in-
come, transfer payments, labor market experience,
changing family composition, and housing.

Unofficial estimates of purchasing power pari-
ties between the East German Mark and the West
German Deutschemark have also been prepared by
the Deutsches Institut to supplement the extremely
weak price statistics of the former East Germany.
Finally, the authors describe the need for consistent
input-output tables for East and West Germany, as
well as for the united Germany; the difficulties in
developing these tables; and the inability of the
Federal Statistical Office to undertake such work at
this time. Preliminary work to recalculate the exist-
ing input-output table for East Germany for 1987
according to Western standards is being undertaken
by the Deutsches Institut in cooperation with the Insti-
tute for Economic Sciences in the former East Berlin.

Jozef Olenski.* “Statistical Production Processes in
Transition.”

Based on the experiences of the Polish Central
Statistical Office, this paper discusses the impact of
the transition to a market-based economy on official

Footnotes to the appendix

statistics. In particular, the author focuses on the
statistical production process and specific changes
needed in this process as the transition to a market
economy progresses. The effects of the transition on
the legal status and organization of official statisti-
cal agencies also are discussed.

Olenski describes the statistical system in Poland
up until 1988 as a “reporting” system, with all state-
owned and cooperative enterprises required to re-
port data to a central administrative body. In general,
private enterprises were not covered by this report-
ing system. The basic form of data collection was
the full survey, or census. Sample surveys were not
considered an acceptable means of data collection.
Information collected for statistical purposes was
widely available, even in disaggregated forms, and
used for nonstatistical purposes.

After 1988, as a result of dramatic political and
economic changes, the private sector began to de-
velop rapidly. The number of private businesses
increased markedly. State-owned businesses began
to be privatized and the need to update and maintain
a business register became clear. The importance of
ensuring the confidentiality of data collected from
private businesses was established. The existing sta-
tistical system, characterized by Olenski as a “re-
porting” system, clearly was unable to provide the
information needed by an emerging market economy.
The system needed to be adapted to account prop-
erly for the development of the private sector and
the movement toward a market-based economy.

Olenski provides a very practical description of
the components of the statistical production process
and the changes required in each statistical compo-
nent as a result of the movement toward increased
market activities. Data sources; data editing and
validation; data storage and retrieval; data process-
ing; publication and dissemination of official statis-
tics; and statistical tools such as business registers,
classification systems, nomenclatures, and glossa-
ties are included in his careful discussion of the impact
of transition on the production of official statistics.

‘To receive a copy of a conference paper, or further
information on obtaining the conference proceedings vol-
ume, contact Susan Powers, Office of Productivity and
Technology, Bureau of Labor Statistics, Room S-4325,
Frances Perkins Building, 200 Constitution Ave., N.W.,
Washington, Dc 20210.

2 Bruno Dallago is affiliated with the Department of
Economics, University of Trento, Trento, Italy.

+ Robert B. Koopman is Leader of the Planned Sys-
tems Analysis Section, Centrally Planned Economies

28 Monthly Labor Review March 1992

Branch, Economic Research Service, U.S. Department of
Agriculture.

“Manfred Melzer is senior researcher at the German
Institute for Economic Research, Berlin, Germany. Reiner
Staeglin is a researcher at the German Institute for Eco-
nomic Research and a professor of economic statistics at
Free University of Berlin.

‘Jozef Olenski is the Director of the Research and
Development Cenire of Statistics, Central Statistical Of-
fice, Warsaw, Poland.


equally; and the pledge to protect the confiden-
tiality of respondents.

Throughout the conference, the Eastern Eu-
Topeans expressed eagerness to seize the oppor-
tunity to develop a new statistical system during
the period of economic transition. Western par-
ticipants cautioned against unnecessarily de-
voting resources to reinventing statistical
definitions or methods. Some advocated taking
over an existing statistical system “lock, stock,
and barrel” from one of the European Commu-
nity countries, to obtain an internationally com-
patible statistical system immediately and with
minimal effort.

Others advised that differences in institu-
tional structures between the Eastern European
and Western countries be carefully considered
when implementing a new statistical system.
Statistical definitions and concepts accepted by
Western statisticians might be readily imported,
but the statistical methodology used to develop
appropriate measures might need to be adap-
ted. Questionnaires, sampling frames, meth-
ods of recruiting and training interviewers, field
techniques, and methods of analysis might not
be readily transferrable, but instead might re-
quire modification to account for institutional
differences.**

During a followup panel discussion of the
stated policy directions of the Eastern Euro-
pean statistical agencies, Edmond Malinvaud, a
former director of INSEE, the national statistical
institute of France, described three tasks facing
the statistical office.** The first is the building
of a new statistical system suited to the market
economies that are developing. Second, the tran-
sition process itself must be observed. And fi-
nally, data describing the past may need to be
revised. He proposed that the main priority
should be to build the new statistical system,
and elaborated on the institutional prerequisites
for a strong statistical system.

In his panel remarks, Malinvaud asserted
that it is essential to obtain a clear, commonly
applied set of laws providing a legal basis for

Footnotes

the statistical system. A second institutional
issue involves balancing the coordination of
statistical concepts and data with the need for
decentralization of statistical agencies working
with various users in different fields. Finally,
Malinvaud emphasized the need to achieve a
wide dissemination of data, and to develop pub-
lic recognition of a strong ethic in the produc-
tion of statistics. This ethic should embrace
objectivity in the production of statistics, pro-
vide confidentiality to respondents, be open to
questions about the validity of published statis-
tics, and promote an awareness of the relevant
issues that statistics must address.

THE STATISTICAL ISSUES facing the Eastern Eu-
ropean statistical agencies have both unique
and universal qualities. The economic, politi-
cal, and social price of the transition from a
centrally planned to a market-oriented economic
system is high, and there is a pressing need to
resolve these issues quickly. Yet, as the Eastern
European economies adopt a market orienta-
tion, the requirements of the statistical systems
become increasingly clear. The Conference on
Economic Statistics for Economies in Transi-
tion provided a rich basis for mutual coopera-
tion and further understanding of the difficul-
ties ahead. Short-term solutions were suggested
for transition-period statistical needs, and guid-
ance was offered in the development of future
statistical systems.

The U.S. Bureau of Labor Statistics contin-
ues to cooperate with the central statistical of-
fices of Poland, Hungary, Czechoslovakia, and
the former U.S.S.R. (now the Commonwealth
of Independent States) in rebuilding their statis-
tical systems. Bureau staff recently traveled to
Poland, Hungary, and Czechoslovakia to fur-
ther develop our assistance programs, and the
Bureau’s Division of International Technical
Cooperation continues to work with Eastern
European statistical agency staff in devising
and conducting training seminars and other pro-
grams. im

For ease of exposition, the term “Eastern Europe” is
used in this article to refer to Poland, Hungary, Czecho-
slovakia, Yugoslavia, Bulgaria, Romania, and the former
German Democratic Republic (East Germany), as well as
the Union of Soviet Socialist Republics (U.S.S.R.). The
article's reference to the U.S.S.R., rather than the Com-
monwealth of Independent States, reflects that nation’s
political status when the conference was held.

2 A volume on the conference proceedings, including
commissioned papers, panel discussion remarks, and dis-
cussant and audience comments, is forthcoming.

3 In addition to the recent conference, the U.S. Bureau
of Labor Statistics is providing guidance and support to
statistical agencies in Poland, Hungary, Czechoslovakia,
and the former U.S.S.R. (now Commonwealth of Indepen-
dent States) as they work to meet these challenges. The

Monthly Labor Review March 1992, 25


European countries to construct dollar values
of gross national product, and the large amount
of resources needed to estimate quality-adjusted
purchasing power parities for use in estimating
national income.

In addition, Hewett suggests that ma-
crovariables will inevitably give a distorted view
of economic activity during the transition pro-
cess, because of problems in measuring prices
and in capturing changes in the quality and
quantity of goods produced. As a result, less
emphasis should be placed on the measurement
and interpretation of macro variables during the
transition period. More priority should be given
to direct quality measurement for selected
goods and services, the change in shortages
of goods over time, and environmental quality
variables.

Price collection and measurement. As involve-
ment in free-market activities increases, a ma-
jor problem for most of the Eastern European
statistical agencies centers on unreliable price
indexes. As indicated earlier, statistics that make
use of the official price lists—such as measures
of the rate of growth of output or productiv-
ity—may be seriously distorted because of the
difference between the official list price and the
theoretical “market value” of a good or service.

Under central planning, prices were set, rather
than determined by supply and demand. Offi-
cial prices frequently remained unchanged for
extended periods. The official list price of goods
and services often differed greatly from the
value to purchasers, as reflected by prices of
similar items purchased in unofficial markets.

As the “unofficial” market becomes more
important and the types and numbers of new
enterprises increase, continued reliance on offi-
cial prices will have a downward biasing effect
on price indexes.'® Goods sold at high market
prices may be valued at lower official prices
when included in the price index. As a result,
true price increases may be understated (and
output overstated) because of difficulties in
measuring price increases and changes in qual-
ity of goods.

Alan Heston and Robert Summers, both of
the University of Pennsylvania, suggest in their
paper on price collection and measurement that
the numbers of products and sales outlets in the
price collection sample should be increased as
the market economy expands, to minimize this
downward bias in the price index during the
transition. In their analysis, Heston and Sum-
mers compare price collection frameworks of
Bulgaria, Romania, Poland, Czechoslovakia,
Yugoslavia, the former German Democratic Re-
public, Hungary, and Austria.

Bulgaria and Romania had the smallest
samples of items priced, in the smallest num-
bers of sales outlets, and used primarily official
prices. Czechoslovakia and Poland collected
price information for more than 1,000 items.
Both countries have relied extensively on offi-
cial price lists to collect price data in the past,
but Poland is rapidly moving away from this
reliance on official price lists.'’ Yugoslavia and
the German Democratic Republic used a mix-
ture of official and survey price information,
with the German Democratic Republic collect-
ing data for more than 1,000 items, Austria and
Hungary primarily used survey data for price
information on more than 1,000 items.

Stephen Gardner of Baylor University, in his
paper on product quality and price inflation,
discusses the importance of quality adjustments
for price measurement in the Eastern European
countries. Apart from existing problems of ad-
justment for changes in the quality of items
purchased in the Eastern European countries,
Gardner suggests that product quality will un-
dergo further deterioration during the transi-
tion, followed by a marked increase in quality.
“Hidden” inflation, reflected by a change in the
quality of a good without a corresponding
change in the price of the good, would increase.
Economic indicators would not reflect this in-
crease and would be misleading, perhaps mak-
ing the transition period more difficult.

Gardner describes three types of quality-re-
lated hidden inflation. Constant-quality hidden
inflation is a hidden price increase that occurs
when producers evade price controls by intro-
ducing “new” products with insignificant qual-
ity improvements, at higher prices. Declining-
quality hidden inflation results when there is a
decline in the quality of a product, without a
corresponding fall in the price. Rising-quality
hidden inflation results when unavailable low-
priced, low-quality goods are replaced by high-
priced, high-quality goods.'*

Some methods to correct for hidden infla-
tion that are assessed by Gardner include the
matched model method, direct quality adjust-
ment, and hedonic analysis. Under the matched
model method, products included in the price
index must be unchanged between the base and
reference years.’® Gardner suggests that the
matched model method would be difficult to
use during the transition period because the
assortment and quality of goods would be chang-
ing dramatically.

Direct quality adjustment also would be dif-
ficult during the transition period, when prod-
ucts are being completely replaced. Direct
quality adjustment requires base-year prices for
new products. Yet, market prices have not been

Monthly Labor Review March 1992. 21


20 Monthly Labor Review

Statistical Needs in Eastern Europe

The exclusion of much of the service sector
results in net material product being signifi-
cantly smaller than gross national product, the
estimate developed by market economies, which
use a system of national accounts. Bergson’s
paper reviews a variety of factors distorting the
official Soviet national income measures, and
compares these measures with U.S. Central In-
telligence Agency calculations of Soviet na-
tional income.

Bergson points out that distortions in the
national income measure arise at the basic data
level when enterprise managers have an incen-
tive to falsely report that production has met or
exceeded established quotas. However, the im-
pact of this false reporting on national income
measures will be limited, in Bergson’s view,
because statistical personnel monitor enterprise
reports.

Bergson suggests that the use of inappropri-
ate base-year prices for newly introduced prod-
ucts may also result in an overstatement of
growth in real national income. Newly intro-
duced products require an appropriate base-year
price. Goskomstat, the central statistical office
of the former U.S.S.R., has apparently often
determined this base-year price by referring to
the prevailing prices of similar goods in pro-
duction at the time the new good is introduced.'°
Bergson suggests that this procedure is not as
problematic as it might seem, because official
prices are revised infrequently. However, prod-
ucts that differ only in a minor way from exist-
ing products have frequently been assigned
inordinately higher prices than existing, com-
parable products.'' As a result, the use of pre-
vailing prices to establish a base-year price for
a newly introduced product results in an in-
flated value for the new product and an over-
statement of real national income growth.'?

Bergson notes in his paper that Goskomstat
is now publishing real national income mea-
sures that reflect the application of the system
of national accounts methodology, for compari-
son with the material balances system method-
ology. Steven Rosefielde, in his discussant
comments on Bergson’s paper, states that the
primary deficiency of the Soviet statistical sys-
tem is its reliance on state-established prices
and production levels, rather than the choice of
the material balances concept over the system
of national accounts. Simply adopting the West-
em system of national accounts and correcting
some data reporting errors will not eliminate
basic distortions in the Soviet national income
figures that result from the reliance on state-
established prices and production quotas."

Marer similarly cautions in his paper that the
adoption of the system of national accounts-

March 1992

based classifications and definitions will not
automatically improve the credibility of the re-
sulting statistics. He points out that, if the same
price indexes are applied using the system of
national accounts data, the resulting statistical
measures might be distorted just as the material
balances system-based measures are.

Leszek Zienkowski of the Polish Central Sta-
tistical Office and the Polish Academy of Sci-
ences presented a paper on statistics and the
transition to the free market in Poland that sum-
marizes the experience of the Polish statistical
agency in using the material balances method-
ology. Because decisionmakers under central
planning required data on real flows to make
production decisions, the statistical system fo-
cused on the “material sphere.” The “nonma-
terial sphere,” or service sector, which included
redistributive activities such as financial ser-
vices, received little attention.'* Zienkowski notes
that financial data will become increasingly im-
portant as market reforms take place.

According to Zienkowski, material balances
system definitions were often imprecise. In ad-
dition, in Poland, the material balances system
was isolated from “branch” or industry and sec-
tor level statistics. Data produced for industries
and sectors were not coordinated in the material
balances system definitions and classifications,
and so were not compatible. Finally, the classi-
fication system used in the material balances
system is different from that used for system of
national accounts measures in Western European
countries and recommended by the United Na-
tions, making international comparisons difficult.

In his paper, Zienkowski concludes that Po-
land should create a completely new statistical
system, based on the system of national ac-
counts method of accounting. He suggests that
such accounts be developed parallel to the ma-
terial balances system accounts, and replace the
latter accounts as soon as possible. The creation
of a new statistical system would permit the
development of a “fully consistent system of
basic data” collected from households, estab-
lishments, banks, budgeting agencies, and other
reporting units.'° In addition, the Polish statisti-
cal office should exert its influence on the ac-
counting rules followed by enterprises, the
banking sector, and those responsible for the
state budget.

Ed Hewett of The Brookings Institution, in
his discussion of the paper by Marer, suggests
that economies in transition might give less
priority to preparing comparable estimates of
national income, considering the limited re-
sources available to the Eastern European sta-
tistical offices. Hewett cites the inadequacies of
using existing exchange rates for the Eastern



paper on the changing statistical needs in East-
ern Europe, Paul Marer of Indiana University
introduced the phrase “historically planned
economies” to capture the new economic diver-
sity in these countries.’ Historically planned
economies include traditional) and reformed cen-
trally planned economies, as well as economies
in transition.® This phrase emphasizes the lin-
gering importance that central planning will
have in these economies, and provides a useful
characterization of those countries that have
experienced central planning. Marer’s paper
suggests that the process of introducing market
institutions and instruments may take a sub-
stantial amount of time, as Eastern European
economies transform their institutions, the be-
havior of their economic agents, and their sta-
tistical practices. Characteristics of the centrally
planned economy and the associated statistical
system may persist to varying degrees during
this transitional period.

Centrally planned economies tend to be com-
posed of a relatively small number of very large
state enterprises, whereas a market economy has a
large number of smaller, private enterprises.
Under the central planning system, decision-
makers require a great deal of detailed informa-
tion. The authority of state officials over enter-
prises allowed the state to place a heavy burden
on enterprises to report this information. Data
collection under central planning also empha-
sizes the need for universal coverage through cen-
suses, to ensure greater reliability of the data. In
turn, the statistical measures developed in the
centrally planned economies often rely on the
collection of large amounts of data.

As economic reforms are instituted, much of
the data now collected may become unneces-
sary. At the same time, new data and statistical
needs are being created as the market sector be-
comes increasingly important to the economy. For
example, more accurate cost and profit informa-
tion will be needed by private enterprises and by
the government for assessing economic activity.

Conference participants generally agreed that
increased reliance on sample surveys, rather
than censuses, will be necessary. As the num-
ber of enterprises expands dramatically in the
emerging market economies, the cost of col-
lecting data using a census becomes prohibi-
tive. In addition, use of sample surveys will
reduce the burden on private entrepreneurs,
whose responses will provide the data.

Because data reporting will no longer be
compulsory and because the market economy is
highly competitive, private entrepreneurs need
to be assured that the data they provide to gov-
ermment statistical agencies will be confiden-
tial. Private organizations, on a voluntary or

for-profit basis, might be encouraged to be-
come involved in collecting and providing data,
thus supplementing the efforts of government
statistical agencies.

The definitions of basic statistical measures
in centrally planned economies often are differ-
ent from those appropriate for a market
economy. For example, measures of output in
centrally planned economies most often are
based on a “net material product” concept, and
are difficult to compare with output measures
developed by market economy countries using
the system of national accounts. Under central
planning, price indexes often are based on list
prices, rather than on actual selling prices, with
the result that measures of economic growth
and inflation are distorted. In addition, some
statistical measures may have been constructed
in such a fashion as to reflect favorably on the
performance of the centrally planned economy.

Although the degree of economic reform in
each country varies, representatives from the
Eastern European nations expressed similar con-
cems with regard to many of the statistical mea-
surement issues raised during the conference.
The following section focuses on some of the
topics discussed, including measures of output
and the national accounting system, price col-
lection and measurement, labor force statistics,
household income surveys, and private enter-
prise data.”

Selected issues

Output measures and national accounts. The
Eastern European countries have in general re-
lied on a material balances concept in con-
structing measures of output. In his paper on
real national income measurement, conference
participant Abram Bergson of Harvard Univer-
sity discusses the importance of the material
balances system of national accounting for the
economy in transition, from the perspective of
the Soviet Union.

The concept of national income under the
material balances system is net material prod-
uct. Net material product is a measure of the
production of final goods and “material” ser-
vices. This concept of national income excludes
depreciation of productive capital assets and
“nonmaterial services.” Nonmaterial services
are viewed as a redistribution of material pro-
duction, and so are excluded from the national
income measure.’ Some services, defined as
“material services,” which do contribute to the
production of goods, are included in net mate-
rial products. Among these are freight trans-
port, business communication services, trade
services, and restaurant services.?

Monthly Labor Review March 1992

i9