The Leontief-BLS partnership: a new framework for measurement

Monthly Labor Review, June, 2001 by Martin C. Kohli

A second difference concerned the selection of sectors worthy of interest. The problem posed by Leontief required taking government spending, or at least the military portion of it, as exogenous. In the 1919 and 1929 tables, government had been lumped, along with trade, finance, and nonrail transportation, into the undistributed sector; in the 1939 table, it stood alone in the 11-sector version that Leontief published, and it was also alone in the 43-sector version included in the Bureau's unpublished study on postwar employment.(17) Data on government purchases came from a 1939 Bureau study of Federal contracts and a study by the Temporary National Economic Committee. The 1939 table also improved on its predecessors by breaking out trade as a separate sector. Even with the inclusion of these additional sectors, 15 percent of gross output was still charged to the undistributed account.

Another change concerned the representation of investment. In his first book, Leontief had pointed out the theoretical relationship between the transactions table and the national income accounts. Following up on this idea, the Bureau sought to reconcile its transactions table with those same accounts. Marvin Hoffenberg, who had the responsibility for this work, realized the desirability of moving capital-account purchases out of the transactions table. As W. Duane Evans and Hoffenberg would point out, there was no a priori reason why the ratio of investment spending to output would be stable.(18) For example, to produce more bread, a bakery would need more flour, but not necessarily more ovens. Thus, the 1939 table had an investment column, which showed how much of an industry's output was purchased for domestic private investment, and a row, which would have shown depreciation if the data had been available. After removing investment spending and taking into account changes in inventories, the Bureau sought to impose the constraint that the value of output (the row sum) equaled the value of inputs (the column sum), although data limitations prevented the achievement of this goal in all industries.

With government and investment represented explicitly, the 1939 table, unlike Leontief's earlier tables, had estimates of all four of the components of the product side of GNP. In 1942, the Department of Commerce released its first estimates of the product side. Perhaps because these were not well documented, Hoffenberg's reconciliation concerned only the income aspect. The Bureau's estimates indicated that households received $61.2 billion in income from businesses and $10 billion from government, for a total of $71.2 billion. The Bureau noted that the Commerce Department's estimate was $400 million, or 0.6 percent, less, because of different treatments of contingency reserves, bad-debt allowances, and inventory revaluations.(19)

Measuring interindustry flows led the Bureau into new types of statistical work. As Joseph P. Goldberg and William T. Moye noted, the Bureau's traditional way of operating was to conduct voluntary surveys, in which employers or households were asked more or less directly about strikes, labor conditions, prices paid, or quantities purchased. Schedules were checked for internal consistency, but not for consistency with values for an industry.(20) In the 1930s, many BLS surveys covered only selected parts of the economy. For example, the Wholesale Price Index, which later became the Producer Price Index, covered less than half the value of the products produced by the mining and manufacturing sectors.(21) In the case of constructing a transaction table, the Bureau employed a classification system that covered the entire economy. After defining total industry output and input and determining their values, the primary problem was to disaggregate purchases of intermediate inputs, subject to a set of accounting constraints. This is essentially a problem of inferring economic transactions from noneconomic data. The documentation for the 1939 table provides some examples: to estimate the use of coal by the trade, services, and housing sectors, for instance, the staff assumed that coal consumption would be proportional to the square footage of the areas that needed to be heated, and then they developed estimates of the square footage in the three sectors.(22) Moreover, while BLS staff could improvise inferences for specific cells, the double-entry character of the table required that all of these measurements be consistent with each other.