Productivity in Ireland 2017

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The above chart shows the various factor inputs used in the Manufacturing sector for the period up to 2014. From 2000 to 2002, Gross Output followed a declining trend mainly driven by lower levels of manufacturing, probably due to falling demand for manufactured products. This in turn led to a fall in inputs used in production, particularly to a fall in services. From 2003 to 2005, Gross Output was relatively steady, likely due to increased production, which led to the increased demand for services. Gross Output declined from 2006 to 2008, most likely associated with the falling demand for manufactured products as the economy approached the recession in 2008. This decline in Gross Output mainly resulted in a falloff in demand for services. Negative growth in Gross Output was recorded in 2013, before turning positive in 2014.

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The above chart shows Gross Output in the Construction sector broken out by the KLEMS inputs. Unlike the Manufacturing sector in the previous section, where the trend in gross output was predominantly explained by changes in services inputs, the growth in Gross Output in the Construction sector is mainly explained by changes in material inputs and MFP as well as services. During the earlier years, Gross Output remained below the 20% level, however it was during the recessionary period that the worst of the impact was felt when Gross output  fell by over 60%. This is mainly explained by the large fall off in labour input as well as the negative contribution from materials. The year 2010 saw Gross Output recover largely driven by the increased contribution from materials and services. A spike occurred in Gross Output again in 2014, where growth rose above 20%. This is predominantly due to the increased contribution from materials and services.  A steady fall had already occurred in Gross Output from 2008 to 2011 and this is clearly associated with the falling contribution from services.

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The chart above shows Gross Output in the Wholesale and Retail sector up to 2017.  The various factor inputs that explain productivity changes in the KLEMS framework are presented. From 2000 to 2003, the large swings in Gross Output during this mini recession are associated with increases and decreases in capital services. From 2004 to 2006, the volatility in Gross Output results in positive and negative contributions from services. Gross Output declined consistently from 2006 to 2009, largely attributed to the recessionary period where falls in MFP occurred over the four-year period. Growth resumed from 2009 to 2010 and is explained by the increased labour input and MFP. The latter years of 2015 to 2017 saw Gross Output decline mainly because of the declining contributions from MFP and capital services.

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The above chart shows Gross Output with the various explanatory factors in terms of intermediate inputs (E,M,S)and factor inputs (K,L) in the Information and Communication sector. The largely volatile nature of Gross Output in this sector is largely associated with the large swings in services over the entire 17-year period. One large fall in Gross Output occurred in 2003, due to the dot-com bust. Another large fall in Gross Output occurred between 2010 and 2011, possibly linked to the recessionary period. A third large fall in Gross Output occurred between 2012 and 2013. Otherwise the results for the sector are strongly positive with services being the significant input right through the series.

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The trend in Gross Output in the Accommodation and Food sector broken out by the KLEMS inputs is shown above. It differs from the trend in other Economic Sectors presented in this Chapter where the impact of services inputs largely explains the overall trends. For the Accommodation and Food sector, productivity changes are mainly explained by changes in materials being consumed in the production process. Between 2004 and 2005, Gross Output fell mainly driven by falls in materials. During the recessionary period, a sharp fall occurs in Gross Output from 2008 to 2011 and this is clearly explained by the falling contribution from materials as fewer customers result in lower production. From 2013 to 2017, the slight swings in gross output growth are explained by the contribution from labour as opposed to materials.

The chart above shows growth in hours worked and the quality adjusted labour input, known as QALI. It is clear from the graph above that both hours worked and QALI followed a similar pattern up until 2008. From 2008 to 2013, clear differences emerge between the two measures. At the height of the recession from 2009 to 2011 in the Construction sector, the fall in hours worked was much greater than the fall in QALI. Growth in hours worked fell more sharply as this measure does not account for the education levels of those working in the sector, while QALI does. The gap between the two measures indicates that the majority of those who were laid off during the period were those who had a lower level of education. By 2012 and 2013, the gap between growth in hours and QALI narrowed, perhaps suggesting that some of those low skilled workers who had lost their jobs, were finding jobs elsewhere. From 2015 onwards, growth in hours worked rose above QALI, perhaps leading to the conclusion that as the economy recovers, the sector is hiring people with a lower level of education.

The chart above shows QALI decomposed into Labour composition, otherwise known as labour quality, and hours worked. The early years were characterised by QALI and hours worked growing at a similar rate, however it is during the recessionary period that labour quality begins to make an impact. From 2009 to 2012, labour quality increased, as many lower educated workers left the sector. By contrast since the recovery period from 2013 onwards labour quality has decreased, suggesting that the sector is recruiting less educated workers.

The chart above compares growth in hours worked and QALI in the Wholesale and Retail sector. It is clear once again from the graph above that both hours worked and QALI followed a similar pattern up until 2008. Between 2008 and 2009, differences emerge between the two measures, however these are not as pronounced as in the Construction sector. At the height of the recession from 2008 to 2009, the fall in hours worked was slightly greater than the fall in QALI. The gap between the two measures highlights the fact that it was the lower-paid and lower educated workers who were most affected by the recession. For the remaining period, both hours worked and QALI follow a very similar pattern.

The chart above shows QALI analysed by Labour composition and hours worked. The early years were characterised by QALI and hours worked growing at a similar rate, however, in line with the Construction sector above, it is during the recessionary period that labour quality begins to be more apparent. Labour quality increased, as many low-quality workers left the sector. In contrast by 2010 labour quality decreased, suggesting that firms in the sector were again recruiting workers with lower levels of education. From 2010 onwards, QALI and hours worked follow the same trend.

The above graph compares growth in hours worked and QALI in the Education sector. It is clear once again from the graph that both hours worked and QALI followed a similar pattern up until 2008. Between 2008 and 2009, relatively smaller differences emerge between the two measures. The recessionary period, particularly between 2009 and 2010 saw the fall in hours worked slightly overtake the fall in QALI, resulting in some less educated people suffering job losses during the period, however the impact is not as pronounced as in the previous two sectors. For the remaining period, both hours worked and QALI follow a very similar pattern, however a slight difference can be seen between 2013 and 2015, where hours worked grow faster than QALI.  In general, given the high levels of educational attainment in this sector major deviations between the QALI and hours worked measures are not expected.  Accordingly, we observe in the later years the sector seems to have recovered with QALI and hours worked growing at the same rate.

The chart above shows QALI decomposed into Labour composition and hours worked in the Education sector. The only years where it might be deduced that workers with lower educational attainment have left the sector is in 2010 and 2011, when labour quality is positive. There were minor falls in the quality or educational level in 2014. This is evident by the negative labour quality witnessed in 2014, this could have been due to rising employment vacancies in other sectors which resulted in problems for recruitment in the Education sector.

The graph above looks at growth in hours worked and QALI for the economy. Between 2008 and 2010, the impact of the recession is felt, and a picture emerges where lower educated people suffered the brunt of the sharp slowdown in the economy. This is evident where the trend in hours worked falls faster than the fall in QALI.  In the latter years, particularly since 2013, growth in hours worked has risen slightly faster than QALI. This is an indication of the economy approaching full employment, where capacity constraints exist in recruiting higher skilled people.

The final graph shows QALI decomposed into Labour composition and hours worked for the economy. The only years where it could be indicated that low quality workers have left the sector is in 2009 and 2010, when labour quality is positive. The latter years from 2013 to 2017 are characterised by slightly negative contributions from labour composition. As stated above, this could be an indication of capacity constraints in various sectors, where some sectors are unable to hire suitably educated people, or indeed the requirement is for lower educated workers.  Or it could even be due to the increasing opportunities abroad that reduces the supply of highly educated people in Ireland.