Productivity in Ireland 2018

This publication has presented and explained new CSO results for productivity in the Irish economy since 2000. Some key findings are outlined below.

 Labour productivity growth of 9.3% for the Foreign Sector of the Irish economy has been the highest in the EU, mainly due to increased GVA in the economy over the period 2000 to 2018. For Ireland as a whole, the result of 3.4% is also higher than the EU annual average of 1.25%. Due to the high concentration of large MNEs in the Foreign sector, it has far outperformed the Domestic and Other sector. Nevertheless, productivity growth in the Domestic and Other sector of the economy at 1.5% compares favourably with other EU member states.

Multi-factor productivity (MFP) has played a small part in explaining Ireland’s economic growth over the entire period 2000-2018. This is illustrated in figure 6.13 and 6.14. Annual average growth in the Domestic and Other sector was 0.1%, while annual average growth in the Irish economy is unchanged over the entire period. Annual average MFP declined in the Foreign dominated sector by 1.4%. This negative MFP result in the Foreign sector and the absence of MFP growth in the overall economy over this entire period is explained by the impact of large discrete additions to the capital stock as occurred in 2015 and to a lesser extent in 2017 and their impact on capital services estimates and GVA.  In these cases, the increase in capital services has exceeded the GVA growth rate and with labour input unchanged, negative MFP has been the negative residual item. For 2018 the MFP result for the Irish economy as a whole was 7.6%, leaving Ireland at the top of the distribution of EU member states.  The result for the Foreign Sector was 21.3% while the Domestic and Other sector reported a decline of 0.1%. These MFP results are a clear example of the volatility in Ireland’s MFP growth and how Ireland’s productivity story over the period, is explained more by the growth in capital than any other factor.

The labour share analysis introduced in Chapter 4 develops this theme of capital intensity and demonstrates the impact on the return to the factors of production of ongoing additions to the capital stock, particularly since 2015.  The labour share of 31% in 2018 is significantly lower than any other country in the EU.

Another notable aspect of productivity in Ireland over the period has been the substantial differences in both input and output growth in the periods before and after the crisis. Hours worked tended to increase at a rate close to or faster than output prior to the crisis. This resulted in falling and negative labour productivity growth. However, since 2009, labour productivity growth has tended to be substantially higher with unit labour costs falling.