Productivity in Ireland 2019

Productivity in Ireland 2019 presents the latest analysis by CSO of 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 limited number of economic sectors. The foreign/domestic distinction followed in this publication entails some simplifications in terms of the actual divide between foreign-owned and domestically-owned entities operating in the Irish economy. Nevertheless, this approach delivers key indicators on the productivity performance comparing these two structural blocks of the economy.

The structural distinction between foreign ownership and domestic ownership in sectors of the economy is critical to understanding productivity developments in Ireland. Increases in productivity growth are generally associated with improvement in living standards. However, in the case of the Irish economy, productivity indicators must be carefully interpreted. There are instances of very high productivity growth in Foreign-dominated sectors that result in limited spill-over into other more Domestic sectors and in limited gains for Irish households. These sectoral results for Foreign-dominated groupings 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 results. In these situations, there are almost no changes to Labour input which remains relatively unchanged. Consequently, it can be difficult to interpret the MFP results reported, in particular for the years 2015 and 2017. There is also a similar impact on the overall period averages for MFP.

In addition to including results for 2019 and to extending the time series, work on consolidating the analysis presented in previous reports on KLEMS and QALI has continued in this report. The value of QALI - where labour market data is supplemented by education, experience and gender information – is that it gives insight into human capital developments in the economy. In other words, as the QALI indicator increases, the stock of human capital in the economy also improves. Improved data sources and reassessment of the methodologies used has led to improved QALI estimates in this report. In the case of the KLEMS analysis, the impact of intermediate inputs of Energy, Materials and Services on production is included in the productivity analysis along with the standard inputs of Capital and Labour. In general, this type of cross-cutting productivity analysis is necessary to produce QALI and KLEMS estimates - where economic, labour market and business data are combined - can occasionally deliver unexpected results. For this reason, the QALI and KLEMS estimates are still considered experimental and remain a work in progress.

Finally, there are some new and interesting analytical pieces added this year including a chapter on innovation which is a key driver of productivity in the economy. In this case we have leveraged existing data compiled by our colleagues in CSO’s Business Statistics Directorate to give an improved context for the results presented in this report.

Looking at the Publication chapter by chapter; the first chapter 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).

Chapters 2 – 5 and Chapter 7 are the core productivity accounts for Ireland. These accounts are produced following a well-established approach recommended by OECD in their Productivity Manual. Chapter 2 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 chapter describes the developments in Labour Productivity caused by changes in the Capital Intensity of Labour, or Capital Deepening, and MFP. The Capital Intensity of Labour is the amount of capital used in the economy per hour worked.

The fourth chapter presents analysis of 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 this chapter, a number of presentations of the labour share are set out as well as international comparisons.

In Chapter 5, an analysis of Unit Labour Costs (ULC) is presented, for comparative purposes, as an alternative measure of Labour Productivity. The results align closely with the labour productivity results in previous sections.

Chapter 6 is a new addition on Innovation which is a key driver of productivity in the economy. In this case we have leveraged existing data compiled by our colleagues in CSO’s Business Statistics Directorate to give an improved context for the results presented in this report. Interesting information on Innovation across the various sectors of the economy is included with a particular emphasis on the analysis of Foreign and Domestically-owned firms.

Chapter 7 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 the publication.

The eighth chapter 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.

Chapter 9 reports further progress in estimating productivity on a KLEMS basis drawing heavily on CSO’s historic series of Supply and Use Tables and on the publication Output and Value Added by Activity 2019. A full sectoral analysis in the KLEMS framework is presented for the Irish economy. The KLEMS results are considered experimental and are still a work in progress.

In Chapter 10 further progress has also been achieved with the latest estimates of Quality-adjusted Labour Input (QALI). In this analytical framework, Labour input, which is estimated in the core accounts based on changes in hours worked, is supplemented by details on education, gender, age and economic sector of activity to produce estimates of Quality-adjusted Labour Input.

The results in this publication are produced 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 globalisation has on productivity measures. The data used in the analyses can be found on PxStat, 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 at the end of this publication. Further information on the methodology used in the publication can be found in the Appendix.