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employment or on the basis of revenue or other financial items. Employment is a less ambiguous measure and therefore preferable. This classification should be applied to statistical units in both the manufacturing and service industries.

183. The following size groups (according to number of employees) are proposed:

0

1-9

10-49

50-99

100-249

250-499

500-999

1 000-4 999

5 000 and above.

These categories have been chosen for a variety of reasons, in particular for their ability to conform to the size classification adopted by the European Commission for small and medium-sized enterprises (which, however, also includes a turnover or balance sheet threshold). It is therefore recommended that, if a number of classes are dropped, the breaks at 49 and 249 employees should be maintained so that comparable statistics can be prepared for small, medium-sized and large businesses. For large economies, the class 250 employees and over would be too large, so that the break at 999 employees should also be maintained. The category 0 employee is relevant in several countries that cover enterprises which only include the entrepreneur.

3.5.Government sector

3.5.1. Coverage

184.The government sector is composed of:

●All departments, offices and other bodies which furnish, but normally do not sell to the community, those common services, other than higher education, which cannot otherwise be conveniently and economically provided, as well as those that administer the state and the economic and social policy of the community. (Public enterprises are included in the business enterprise sector.)

●NPIs controlled and mainly financed by government, but not administered by the higher education sector.

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185.According to the SNA definition (UN, 1968; CEC et al., 1994) of “producers of government services” (with the exception of publicly controlled higher education institutions), this sector should include all bodies, departments and establishments of government – central, state or provincial, district or county, municipal, town or village – that engage in a wide range of activities, such as: administration; defence and regulation of public order; health, education, cultural, recreational, and other social services; promotion of economic growth and welfare; and technological development. The legislature, the executive, departments, establishments and other bodies of government should be included, irrespective of their treatment in government accounts. Government-administered social security funds are also included. It is immaterial whether they are accounted for in ordinary or extraordinary budgets, or in extra-budgetary funds.

186.With the exception of those administered by the higher education sector, all non-market NPIs controlled and financed by government are included in the government sector, irrespective of the types of institutional units that mainly benefit from their activities. Control is the ability to determine the NPI’s general policy or programme by having the right to appoint the NPI’s management. Such NPIs are mainly financed by block grants from government, and the amounts of “institutional support” are often published in government reports or budgets. NPIs mainly financed by government should be included in the government sector even if the government control is not clear.

187.Units associated with the higher education sector which mainly serve the government sector should also be included in the government sector.

3.5.2. The principal sector sub-classification

The classification list

188. The United Nations’ COFOG classification (classification of the purposes of government) is the standard international classification for use within the government sector. Unfortunately, it is not considered appropriate for the classification of R&D activities. No agreement has been reached on the most appropriate sub-classification for the government sector; therefore, no recommendation is made. (See Chapter 4, Table 4.1 and Sections 4.4.1 and 4.5.1, for recommendations for functional distribution.)

The statistical unit

189. ISIC Rev. 3, paragraph 51, recommends that when data are combined with those collected from legal business entities, the statistical unit should be similar to the legal business entity.

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Criterion for classification

190. In the absence of a recognised classification list, no recommendation can be made at this time.

3.5.3. Other institutional sub-classifications

191. The following classifications are mainly designed to reveal differences among countries in the coverage of the government sector, which usually result from differences in institutional arrangements.

Level of government

192. Statistical units should be classified into three categories, according to the level of government involved, along with a fourth category for units that cannot be distributed by level of government.

–Central and federal government units.

–Provincial and state government units.

–Local and municipal government units.

–NPIs controlled and mainly financed by government.

Type of institution

193.When important groups of units are connected both to government and other sectors (e.g. units administered or controlled by government but situated at, or otherwise associated with, higher education units; or units serving industry but financed and controlled by government), it is desirable to identify them separately when reporting to international organisations. (For this particular classification, the statistical unit may be an establishment-type rather than an enterprise-type unit.) Where R&D in public hospitals is included in this sector, it is also useful to declare it separately. A useful distinction may also be made between units for which R&D is the principal economic activity (ISIC Rev. 3, Division 73) and the rest.

3.6.Private non-profit sector

3.6.1.Coverage

194. In line with SNA 93, the coverage of this sector was reduced substantially in the previous revision of this Manual and now includes:

●Non-market, private non-profit institutions serving households (i.e. the general public).

●Private individuals or households.

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195.As a source of funds, this sector covers R&D financed by NPIs serving households (NPSH). These provide individual or collective services to households either without charge or at prices that are not economically significant. Such NPIs may be created by associations of persons to provide goods, or more often services, primarily for the benefit of members themselves or for general philanthropic purposes. Their activities may be financed by regular membership subscriptions or dues or by donations in cash or in kind from the general public, corporations or government. They include NPIs such as professional or learned societies, charities, relief or aid agencies, trades unions, consumers’ associations, etc. By convention, this sector includes any funds contributed directly to R&D by households.

196.As a sector of performance, PNP includes non-market units controlled and mainly financed by NPIs serving households, notably professional and learned societies and charities, other than those providing higher education services or administered by higher education institutions. However, R&D foundations managed by NPSH but having more than 50% of their running costs covered by a block grant from government should be included in the government sector.

197.By convention, this sector also covers the residual R&D activities of the general public (households), which plays a very small role in the performance of R&D. The market activities of unincorporated enterprises owned by households, i.e. consultants undertaking R&D projects for another unit at an economically significant price, should be included in the business enterprise sector in line with National Accounts conventions (unless the project is undertaken using staff and facilities in another sector, see below). Obtaining data on such R&D may be difficult because R&D activities of individuals are not captured in business enterprise R&D surveys. Hence, the PNP sector should only include R&D undertaken by non-market, unincorporated enterprises owned by households, i.e. individuals financed by their own resources or by “uneconomic” grants.

198.Furthermore, where grants and contracts are formally awarded to individuals who are primarily employed in another sector, such as grants made directly to a university professor, unless such persons undertake the R&D concerned entirely on their own time and make no use of their employing unit’s staff and facilities, they should be included in the R&D statistics of the employing unit. This also refers to postgraduate students in receipt of research grants known to the research unit. It therefore follows that this sector only includes R&D performed by individuals exclusively on their own time and with their own facilities and at their own expense or supported by an uneconomic grant.