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Labour Productivity - Breakdown by MFP and Capital

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To develop the analysis of labour productivity in the Irish economy, this section continues the focus on labour productivity through the framework of capital deepening and MFP. This supplements the basic measure of labour productivity presented in the previous section.

X-axis labelMulti-factor ProductivityCapital DeepeningLabour Productivity
20002.848061.911854.75991
20011.611322.146493.75782
20022.505463.74286.24825
2003-0.90442.890551.98611
20041.486322.221733.70805
2005-3.09882.8563-0.24248
2006-0.84041.178410.337993
20070.7380631.23631.97436
2008-3.89482.96149-0.9333
20091.312855.798217.1110561
20103.704343.114946.8192761
20115.732233.968999.7012279
2012-1.32471.650880.326154
2013-1.3213-0.46367-1.785
20143.040552.510625.55117
2015-13.230696134.329743721.0990476
20161.479870.7105412.19042

Source publication:  National Income & Expenditure Annual Results

Get the data: StatBank N1604, StatBank PIA01

The figure above shows labour productivity analysed by MFP and capital deepening. Capital deepening is growth in the capital intensity of labour (the amount of capital available per hour worked).

Irish labour productivity has been characterised by strong growth for most of the period, explained by increases in capital deepening and MFP. The declines in labour productivity in 2005, 2008 and 2012 have also been associated with increased capital deepening, although they have been offset by falls in multi-factor productivity.

Ireland’s growth in labour productivity from 2000 to 2004 was the result of increases in both MFP and capital. The year 2003 saw a slight fall in MFP but this was offset by capital deepening. MFP was also negative over the years 2005, 2006, 2008, 2012, 2013 and 2015. Although it was partly offset by capital deepening in these years, it resulted in labour productivity declines, particularly in the year 2015.

X-axis labelMulti-factor ProductivityCapital DeepeningLabour Productivity
20000.5996821.685642.28532
2001-0.126851.789391.66255
20020.00979562.812232.82202
20030.08319152.111742.19493
20041.23891.813753.05265
2005-2.56892.590040.0210892
2006-0.0962750.864220.767943
20071.013540.928941.94248
2008-2.37382.706850.333069
2009-1.84745.066463.21909
20103.426012.449725.87573
20116.58078243.216259.7970363
2012-2.89141.22155-1.6699
20130.105657-0.50799-0.40233
20141.405852.227853.63369
20153.207680.79724.00488
20162.337210.1686612.50587

Get the data: StatBank N1623, StatBank PIA02

Labour productivity growth in the Domestic and Other sector was characterised by increases in capital deepening in the period up to 2008. Labour productivity growth remained positive for the period up to 2004 in line with the economic performance associated with the Celtic Tiger. This was followed by a decline in 2005 because of a fall in MFP. Since 2008, labour productivity growth has followed an increasing path until 2011, mainly due to increased capital deepening and increased MFP in the latter years. However, 2012 saw a substantial fall in labour productivity, which was driven mainly by a fall in MFP. Since 2013, in line with improvements in economic growth, labour productivity growth has remained positive, with MFP the main driving force behind the sustained increase until 2016, i.e. improvements in how inputs are used to produce GVA.

X-axis labelMulti-factor ProductivityCapital DeepeningLabour Productivity
20006.005673.046179.0518427
2001-0.052493.373633.32114
20027.711856910.774876718.4867336
2003-7.31997159.22022841.90026
2004-1.36585.52824.16236
20052.545965.586418.13237
20060.839284.309815.14909
20077.23974974.4905711.7303234
2008-3.85010.716405-3.1337
20090.888762.320993.20975
20103.704855.496059.2009055
201113.05556398.104517421.1600813
2012-5.43574.59672-0.839
2013-4.28511.79252-2.4925
20143.583194.725358.3085368

Get the data: StatBank N1623, StatBank PIA02

In line with the Domestic and Other sector, most of the increases in labour productivity in the Foreign sector have come from capital deepening. Prior to 2008, labour productivity growth was characterised mainly by capital deepening. In 2008, with the onset of the recession, labour productivity fell due mainly to a fall in MFP, as workers were laid off and production fell in the economy. In comparison to the Domestic and Other sector, labour productivity growth increased up until 2011, driven by increasing contributions from MFP and capital deepening. Labour productivity declined in 2012 and declined further in 2013, due to a fall in MFP. In 2014, labour productivity increased, due to increased capital deepening.

X-axis labelMulti-factor ProductivityCapital DeepeningLabour Productivity
20006.005673.046179.0518427
2001-0.052493.373633.32114
20027.711856910.774876718.4867336
2003-7.31997159.22022841.90026
2004-1.36585.52824.16236
20052.545965.586418.13237
20060.839284.309815.14909
20077.23974974.4905711.7303234
2008-3.85010.716405-3.1337
20090.888762.320993.20975
20103.704855.496059.2009055
201113.05556398.104517421.1600813
2012-5.43574.59672-0.839
2013-4.28511.79252-2.4925
20143.583194.725358.3085368
2015-84.8126954142.969935758.1572403
20160.2604761.930922.19139

Get the data: StatBank N1623, StatBank PIA02

The chart above shows a breakdown of labour productivity with the years 2015 and 2016 included. There was a 58 percent increase in labour productivity due to a 143 percent increase in capital intensity of labour and an 85 percent fall in multi-factor productivity in 2015. These results were due to significant increases in multinational activity in the Irish economy with large additions to GVA taking place in the form of contract manufacturing and aircraft leasing. The year 2016 saw an increase in labour productivity of 2 percent, which reflected results in line with the series prior to 2015.

X-axis labelMulti-factor ProductivityCapital DeepeningLabour Productivity
Real estate activities-1.03385442925553-1.49644442481863-2.73994304157416
Construction-0.375197975071136-0.234655749454951-0.0212815135270829
Public admin, education and health0.244440182872340.3083096364263730.593891131798711
Distribution and Transport etc.-0.1200583973261081.039103039390040.97042339206393
Arts, entertainment and other services0.9520000822763911.784485568768442.74185127604483
Financial and insurance activities1.124149092541072.415986551239752.91922945003082
Agriculture forestry and fishing1.231140834153222.207674999771493.23972027767471
Total0.03662876083086764.50149877455654.24063316038737
Professional, admin and support services-1.831934469554087.71208926510245.53413133929832
Information and communication1.289409279535866.44329210020367.62887743598946
Industry (excluding construction)-2.921655665591912.20161519533348.60997612349147

Get the data: StatBank N1604, StatBank PIA03

The figure above displays average annual labour productivity growth over the period, with the Industry sector showing the fastest growth. Information and Communication, Professional, Admin and Support Services and Finance and Insurance have also shown strong growth in labour productivity. These industries have accounted for a substantial share of aggregate capital deepening during the period, with MFP growth, particularly in the Information and Communication sector also playing a role. Construction and Real Estate activities have experienced negative labour productivity growth over the period.

Go to the next chapter: Unit Labour Cost: Labour Productivity in Context