In principle, real value added can be estimated by measuring the quantity of goods produced in a period, valuing them at an agreed set of base year prices, and subtracting the cost of inputs, also in constant prices. In some sectors, however, value added is extrapolated from the base year using volume indexes of inputs and outputs. In other sectors, particularly services, real output is imputed from labor inputs, such as real wages or the number of employees. The real output of governments and other unpriced services are calculated in the same way. In the absence of well-defined measures of output, measuring the real growth of services remains problematic.
Technical progress can lead to improvements in production and the quality of goods.
If not properly accounted for, either effect can distort measures of value added and thus of growth. When inputs are used to estimate output, as in services, unmeasured technical progress leads to underestimates of the quantity and real value of output. Unmeasured changes in the quality of goods produced also lead to underestimates of real value. The result can be underestimates of real growth and productivity change and overestimates of inflation. Nonmarket services pose a particular problem, especially in developing countries, where much economic activity may go unrecorded.