Productivity in Ireland 2016

Productivity measures the efficiency with which an economy transforms inputs into outputs. This first publication by CSO¹ on productivity in Ireland presents indicators of productivity in the Irish economy. Productivity growth which drives the change in value added is explained in terms of labour productivity, capital services and multi-factor productivity. Labour productivity is the contribution of hours worked to changes in value added, while capital services measure the contribution of the stock of capital to changes in productivity. Multi-factor productivity, critically, measures the impact of improvements in production methods on productivity.

The framework used in this analysis draws heavily on the System of National Accounts (SNA). Measures of value added, capital and labour inputs and their compensation as factors of production largely draw on data previously published by CSO in meeting the requirements of ESA 2010 - the European version of the latest SNA standards.  

Productivity is usually measured in terms of growth from one period to the next or over longer periods, e.g. between decades. Increases in productivity growth are generally associated with improvement in living standards. However, in the case of the Irish economy a note of caution has to be sounded; because of the high concentration of foreign-owned Multinational Corporations, there are instances of very high productivity growth that result in a limited spillover into the Domestic and Other sector of the economy. To address this challenge, each chapter in this publication uses the two-sector model of the economy covering the Foreign and the Domestic and Other sector, as presented in the CSO national accounts publication Gross Value Added for Foreign-owned Multinational Enterprises and other Sectors. Analyses of the conventional ten-sector model of the economy are also included.

The first part of the publication presents productivity growth since 2000 by the principal economic sectors, by ownership (Foreign and Domestic and Other sectors) and also presents the results analysed by the three main factor inputs – capital input, labour input and multi-factor productivity (MFP).

Part two of the publication explains the growth in labour productivity from a sectoral perspective. Firstly, it describes the changes in labour productivity in terms of hours worked and gross value added produced. It then illustrates how labour productivity has evolved in the Foreign sector and the Domestic and Other sector of the economy. Finally, it explains how labour productivity has evolved in the ten (A10) main sectors of the economy.

The third part of the publication describes the developments in labour productivity caused by changes in capital intensity of labour, that is capital deepening and MFP. The capital intensity of labour is the amount of capital used in the economy per hour worked.

In part four, an analysis of unit labour costs is presented for comparison purposes as an alternative measure of labour productivity. The results align closely with the labour productivity results in previous sections.

Part five presents a comprehensive productivity analysis that examines growth in the economy in terms of labour, capital and MFP. It follows the same sectoral presentation format as earlier parts of this publication.

The sixth part of the publication focuses on the importance of capital in the Irish economy. It explains the growth in capital stocks in Ireland in an international context. A newly developed measure of capital for the Irish economy, capital services, is also described.

The results in this publication are preliminary and are based on new work by the CSO to help users understand the impact that the highly globally-integrated nature of the Irish economy has on productivity measures. The data used in the analyses can be found in Statbank, the CSO’s databank, and can be used to create further productivity analysis. The main productivity indicators can be found in the Tables chapter of this publication. Further information on the methodology used in the publication can be found in the appendix.