Productivity in Ireland 2017

In this second annual publication^[1] CSO presents a comprehensive picture of productivity in Ireland covering almost the first two decades of the twenty first century.  The general approach followed is to measure changes in productivity in relation to the change in Gross Value Added.  Up to date results for the period 2000 – 2017 on labour productivity, capital services and multi-factor productivity are presented by economic sector and for the economy as a whole. 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. 

Productivity measures how efficient the agents in an economy are at transforming inputs such as Capital and Labour into outputs as measured by Gross Value Added.  Accordingly, there are several standard assumptions that underlie how we approach productivity measurement in this publication  and ensure the international comparability of Labour productivity, Capital Services and Multi Factor Productivity.  In the appendix the methodologies followed are outlined together with references for further reading.

In addition to these presentations an additional Research chapter has been included.  In this section more, exhaustive measures of productivity have been presented; as opposed to the Gross Value-Added approach followed in the main chapters of the publication, an approach which explains productivity changes in terms of changes to Gross Output is presented.  This approach is commonly called the KLEMS approach which in addition to measuring the changes in the factor inputs of Capital (K) and Labour (L) the measurement focus is extended to include changes in the inputs of Energy (E) Materials (M) and Services (S). This more exhaustive approach is considered to deliver more accurate and comprehensive estimates of productivity in a given economic sector. The Research chapter also outlines the results of research into a quality adjusted labour input (QALI)which involves the additional consideration of educational attainment, gender, age and economic sector of activity for a more informed estimate of labour input.  The KLEMS and QALI estimates are stand alone and have not been integrated into the productivity estimates for Ireland.  Further research is warranted and the potential for international comparability is limited as there are relatively few countries who currently have incorporated these additional or extended estimates of productivity into their results.

The framework used in this publication 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 however estimates that cover considerably longer periods are considered more appropriate e.g. between decades or multi period averages etc. In this publication both approaches are possible with a seventeen-year annual average change being presented for most measures together with individual annual results.

Increases in productivity growth are generally associated with improvement in living standards.  However, in the case of the Irish economy a note of caution must be sounded; because of the high concentration of foreign owned Multinational Corporations. There are instances of very high productivity growth in the Foreign Sector that result in a limited spill-over into the Domestic and Other sector of the economy. To address this challenge, most chapters in this publication present a two-sector model of the economy covering the Foreign sector 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. Analysis of the economy by economic sector (NACE) has also been extended to present a twenty-one sector model of the economy in order to deliver additional insights into these sectors.

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 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 twenty-one (A21) 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 and the services generated by these capital stocks i.e. capital services, is also described.

Part seven is a research chapter which reports our initial work in estimating productivity on a KLEMS basis drawing heavily on the historic series of Supply and Use Tables and the recent publication by CSO of GDP on an Output basis. In addition, first estimates of quality adjusted labour input (QALI) are also presented where labour input estimated as changes in hours worked are supplemented by details on education, gender and age and economic sector of activity to produce these supplemented estimates of quality adjusted labour input.

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.