Productivity in Ireland 2018 presents the latest analysis by CSO on productivity developments in the Irish Economy since 2000. This report presents a wide variety of indicators from basic Labour Productivity to the experimental but comprehensive KLEMS and QALI related outputs. These results also include international comparisons with our partners in the European Union and beyond.
Productivity analysis poses many challenges and in the case of the Irish economy they are particularly acute due to the highly concentrated activities of Multinational Corporations (MNEs) in a number of economic sectors. The foreign/domestic distinction[1] followed in this publication entails some simplifications in terms of the actual divide between foreign owned and domestic owned entities operating in the Irish economy. Nevertheless, this approach delivers key indicators on the productivity performance when these two structural blocks of the economy are compared. When detailed micro analysis was carried out during the compilation of the Institutional Sector Accounts[2] a key finding was that the performance of the foreign dominated sectors is highly correlated to the performance of all foreign owned entities operating in Ireland in terms of critical economic indicators. This finding validates the use of the LCU[3] or Foreign Dominated groupings as proxies for all foreign owned activity in the economy.
The structural distinction between foreign ownership and domestic ownership in the economy is critical to understanding productivity developments in Ireland. Increases in productivity growth are generally associated with improvements in living standards. However, in the case of the Irish economy, productivity indicators have to be carefully interpreted. There are instances of very high productivity growth in foreign dominated sectors that result in limited spill-overs into other more domestically focussed sectors and also in limited gains for Irish households. These sectoral results for foreign MNE dominated sectors can also have a significant impact on the overall results for the Irish economy.
Moreover, a notable feature of recent years has been the significant additions to the capital stock, particularly in relation to imports of intangible assets by foreign owned MNEs. In the growth accounting framework used throughout this publication these large and discrete additions to capital can result in substantial increases in capital services that are then offset to some extent by negative MFP. There are almost no changes to labour input in these circumstances. Consequently, it can be difficult to interpret the MFP results reported in particular for the years 2015 and 2017. There is also a negative impact on the overall period averages for MFP for the Foreign Sector as a result of these imports of intangible assets.
In addition to including results for 2018 and extending the time series, the focus for this publication was to also consolidate the analysis initially presented last year on KLEMS and QALI[4]. This has resulted in the inclusion of an entire productivity series for these two frameworks covering all twenty-one economic sectors over the eighteen-year period. Composition effects can now be observed for the labour input where the impact of education, work experience, economic sector of employment, age and gender are considered. In the KLEMS analysis the impact of intermediate inputs on production is included in the productivity analysis along with the standard inputs of capital and labour. This type of cross cutting productivity analysis where economic, labour market and business data are combined can sometimes deliver unexpected results. For this reason, the QALI and KLEMS estimates are considered experimental and are still a work in progress.
Finally, there are some new and interesting analytical pieces added this year including a chapter on the Labour share and also analysis on MFP and Intangible assets.
Looking at the chapters of the Publication; 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).
From the second chapter to the seventh one the core productivity accounts for Ireland are presented. These accounts are produced following a well-established approach recommended by OECD[5] in their Productivity Manual. The second chapter explains the growth in labour productivity from a sectoral perspective. Firstly, it describes the changes in labour productivity in terms of hours worked and the 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 chapter 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.
The fourth chapter is a new addition this year and presents analysis on the GVA labour share. The labour share is defined as the proportion of GVA growth attributed to labour with the remainder being attributed to capital. Within the chapter, numerous presentations of the labour share are presented along with international comparisons.
In Chapter Five, 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 chapters.
Chapter Six 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 and presents a new chart on the relationship between MFP and the utilization of intangible assets in production across the sectors of the economy.
The seventh chapter 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. The results for growth in the services leveraged off these capital stocks i.e. capital services, are also reported and described.
Chapter Eight reports further progress in estimating productivity on a KLEMS basis drawing heavily on CSO’s historic series of Supply and Use Tables and the recent publication of GDP on an Output basis[6]. The methodology has been elaborated to incorporate the use of Domar weights to better align the MFP estimates from the core accounts with the KLEMS estimates of MFP. A full sectoral analysis in the KLEMS framework is now available for the Irish economy. These results are considered to be experimental.
Further progress has also been achieved with the latest estimates of quality adjusted labour input (QALI) as evident in Chapter Nine. In this analytical framework labour input which is based on changes in hours worked is supplemented by details on education, gender and age and economic sector of activity to produce estimates of quality adjusted labour input. This analysis has been supplemented by the recent release on Earnings using administrative data sources[7].
The results in this publication are produced and presented in an incremental way as we consider how to best measure and assess productivity developments in Ireland. A key objective is to help users understand the impact that the highly globalised 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 and develop 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.
[1] See National Income and Expenditure 2018 results and GVA for Foreign Owned Multinational Enterprises and Other Sectors Annual Results.
[2] Institutional Sector Accounts
[3] Large Cases Unit data covering the fifty largest foreign owned MNE groups operating in Ireland.
[4] More information on KLEMS can be found here: QALI information can be found here and in the appendix in this publication.
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