2.6 Industrial classification

For purposes of studying technical and economic relations within the national economy, a different classification is applied to economic units: they are divided between local kind-of-activity units and units of homogenous production. Local kind-of-activity units are central to studying value added; units of homogenous production are in turn used for purposes of input-output analysis.

The local kind-of-activity unit refers to "an institutional unit producing goods and services or a part thereof situated in a geographically identified place." (ESA95 2.106). In hierarchic terms, an institutional unit may be composed of one or more local kind-of-activity units, but a local kind-of-activity unit can only belong to one institutional unit (either on its own or together with other local kind-of-activity units).

The distinction between different kinds of local kind-of-activity or business units is important from a national accounting point of view because it allows us to allocate them to different industries on the basis of what they do. According to ESA95, "an industry consists of a group of local KAUs engaged in the same, or similar, kind-of-activity" (ESA95 2.108). Most significantly, local kind-of-activity units are to be similar in terms of their production inputs, production processes and the commodities they produce. The value added method of GDP measurement is based on summing up the value added for each industry, i.e. the units are divided into their respective industries, the value added for each industry is computed and then these sums are added together. It is precisely the industry classification that makes this method possible: it allows us to cluster local business units into larger groups on the basis of their similar raw materials and wage costs. In Finland the GDP is measured using the value added method.

Finland has its own national version of the European industry classification: the standard industrial classification is abbreviated as TOL + year, indicating when the version in question was introduced because the system is revised from time to time. In practical applications the industry classification is used primarily as a system for assigning units such as factories, outlets, offices and repair shops to different industry categories. The industrial classification can also be used for the classification of business enterprises and other statistical units.

TOL is a hierarchic and coded system. The highest level in the hierarchy is represented by main categories A-Q, plus category X (industry unknown). These single-letter codes are used mainly in studies and reports where industries are grouped in a rather crude fashion. Industries are further classified at the two, three, four and five-digit levels, with the five-digit level representing a national elaboration on the EU industrial classification. The greater the number of digits in the code, the more accurate the classification. On the other hand the beginning of each code indicates where the industry belongs at higher hierarchic levels. For example, the category "52421 Retail sale of women's clothing" belongs at the four-digit level under the category "5242 Retail sale of clothing", which at the three-digit level comes under the heading of "524 Other retail sale of new goods in specialised stories), which in turn at the two-digit level belongs to the category of "52 Retail trade". At the highest, letter level, retail trade comes under "G: Wholesale and retail trade".

Examples