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Productivity and the Bonus Culture$

Andrew Smithers

Print publication date: 2019

Print ISBN-13: 9780198836117

Published to Oxford Scholarship Online: May 2019

DOI: 10.1093/oso/9780198836117.001.0001

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(p.142) Appendix 2 Measurement of the Net Capital Stock and Depreciation in the UK and the US

(p.142) Appendix 2 Measurement of the Net Capital Stock and Depreciation in the UK and the US

Productivity and the Bonus Culture

Andrew Smithers

Oxford University Press

The approach of both the UK’s Office of National Statistics (ONS) and the US’s Bureau of Economic Analysis (BEA) are basically the same: the value of the capital stock and depreciation are estimated from historic investment and from survey data. The latter provide evidence for the value of second-hand equipment and thereby for the value of installed capital stock and for the rate at which capital depreciates. As these values will fall in line with the return that can be achieved by the purchaser they will reflect, inter alia, the expected profitability of the equipment, which will in turn reflect the rate of growth of real wages since the capital was installed. The use of survey data thus allows for the rate of growth of productivity when valuing the net capital stock and rates of capital consumption.

The ONS describes its approach as follows:

Gross capital stocks tell us how much the economy’s assets would cost to buy again as new, or their replacement cost. All of the fixed assets in the economy, that are still productive and in use, are added up to calculate this … This measure shows the value at the end of the year. This is mainly calculated as an intermediate step towards net capital stocks … Net capital stocks show the market value of fixed assets. The market value is the amount that the assets could be sold for, which will be lower than the value of gross capital stocks.1

The BEA uses both survey and historic data to measure the capital stock:

There are two basic methods for measuring net stocks. The physical inventory method applies independently estimated prices to a direct count of the number of physical units of each type of asset. The perpetual inventory method cumulates past investment flows to indirectly estimate the value of the stock.2

The BEA bases its estimates of depreciation on survey data:

BEA’s estimates of depreciation are based on geometric depreciation patterns, which are supported by empirical studies of the prices of used equipment and structures in resale markets.3


(1) ONS (2014), p. 4.

(2) Bureau of Economic Analysis (2003), p. M–6.

(3) Bureau of Economic Analysis (2003), p. M–5.