Productivity in Ireland 2017

Source publication:  National Income and Expenditure 2017 Tables 1-22 and Annex 1 for 1995-2017 (XLS 393KB) , Macroeconomic Scoreboard

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Nominal unit labour costs (ULC), which are explained in more detail in the appendix, are comparable to labour productivity trends. Nominal unit labour cost measures nominal hourly employee compensation relative to real labour productivity. Growth in an economy’s unit labour cost suggests that nominal employee income is rising relative to real labour productivity, resulting in decreased competitiveness. On the other hand, a decline in unit labour cost suggests that nominal labour compensation is declining relative to labour productivity, resulting in increased competitiveness

The cost of labour in Ireland increased rapidly relative to overall output from 2000 to 2008.  Since 2009, however, nominal unit labour costs have declined substantially, resulting in a picture showing increased competitiveness in the Irish economy.

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The above chart explains the relationship between nominal employee compensation and labour productivity. Labour compensation per employee increased at a much faster rate than output relative to total employment from 2000 to 2007. This resulted in growth rates in nominal ULC that were often close to 5%. Labour compensation continued to increase in 2008 (although at a lower rate), while output relative to total employment fell. This resulted in an increase in nominal ULC of 5.6%. Since 2009, real output relative to total employment has had major increases. Labour compensation, which initially declined in 2009 and 2010, has grown. Since 2011 growth in nominal labour compensation has turned positive and since 2014 compensation has increased at a rate of between 2% and 6%.

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Nominal unit labour cost for the Domestic and Other sector grew consistently at a rate of close to 5% between 2000 and 2008. This was a result of nominal employee compensation increasing well above real labour productivity throughout. From 2009 to 2011, nominal unit labour cost declined because of increased labour productivity and falls in labour compensation. Nominal unit labour cost fell again from 2013 to 2015. However, this time employee compensation increased with real labour productivity increasing at an even greater rate. In 2016, unit labour costs increased minimally to 0.6%, due to real labour productivity and nominal employee compensation increasing at the same rate. In 2017, nominal unit labour costs fell to -0.4% explained by the fall in both real labour productivity and nominal employee compensation.

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Changes in nominal unit labour cost have been far more volatile for the Foreign sector than the Domestic and Other sector. The Foreign sector has had large and intermittent decreases and increases in nominal unit labour cost.  For example, in 2002 there was a 14% decrease in ULC and the years 2009 and 2017 were the only years that had falls in employee compensation. Moreover, nominal unit labour cost fell by over 40% in 2015 because of a major increase in labour productivity due to the extraordinary growth rate in that year.

Source publication: Macroeconomic Scoreboard

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This chart compares cumulative growth in nominal ULC for Ireland compared to the rest of the EU. Despite having had one of the highest levels of growth in nominal ULC from 2000 to 2008, Ireland is the only country in the EU to have had a cumulative fall in nominal unit labour cost over the entire period. This negative result is driven by developments in the Foreign sector of the Irish economy, the dramatic additions to GVA in 2015. The Domestic and Other sector on its own has had the lowest increase in nominal unit labour cost relative to the rest of the EU.