Productivity in Ireland 2016

Source publication:  National Income & Expenditure Annual Results

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The figure above shows labour productivity analysed by MFP and capital deepening. Capital deepening is growth in the capital intensity of labour (the amount of capital available per hour worked).

Irish labour productivity has been characterised by strong growth for most of the period, explained by increases in capital deepening and MFP. The declines in labour productivity in 2005, 2008 and 2012 have also been associated with increased capital deepening, although they have been offset by falls in multi-factor productivity.

Ireland’s growth in labour productivity from 2000 to 2004 was the result of increases in both MFP and capital. The year 2003 saw a slight fall in MFP but this was offset by capital deepening. MFP was also negative over the years 2005, 2006, 2008, 2012, 2013 and 2015. Although it was partly offset by capital deepening in these years, it resulted in labour productivity declines, particularly in the year 2015.

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Labour productivity growth in the Domestic and Other sector was characterised by increases in capital deepening in the period up to 2008. Labour productivity growth remained positive for the period up to 2004 in line with the economic performance associated with the Celtic Tiger. This was followed by a decline in 2005 because of a fall in MFP. Since 2008, labour productivity growth has followed an increasing path until 2011, mainly due to increased capital deepening and increased MFP in the latter years. However, 2012 saw a substantial fall in labour productivity, which was driven mainly by a fall in MFP. Since 2013, in line with improvements in economic growth, labour productivity growth has remained positive, with MFP the main driving force behind the sustained increase until 2016, i.e. improvements in how inputs are used to produce GVA.

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In line with the Domestic and Other sector, most of the increases in labour productivity in the Foreign sector have come from capital deepening. Prior to 2008, labour productivity growth was characterised mainly by capital deepening. In 2008, with the onset of the recession, labour productivity fell due mainly to a fall in MFP, as workers were laid off and production fell in the economy. In comparison to the Domestic and Other sector, labour productivity growth increased up until 2011, driven by increasing contributions from MFP and capital deepening. Labour productivity declined in 2012 and declined further in 2013, due to a fall in MFP. In 2014, labour productivity increased, due to increased capital deepening.

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The chart above shows a breakdown of labour productivity with the years 2015 and 2016 included. There was a 58 percent increase in labour productivity due to a 143 percent increase in capital intensity of labour and an 85 percent fall in multi-factor productivity in 2015. These results were due to significant increases in multinational activity in the Irish economy with large additions to GVA taking place in the form of contract manufacturing and aircraft leasing. The year 2016 saw an increase in labour productivity of 2 percent, which reflected results in line with the series prior to 2015.

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The figure above displays average annual labour productivity growth over the period, with the Industry sector showing the fastest growth. Information and Communication, Professional, Admin and Support Services and Finance and Insurance have also shown strong growth in labour productivity. These industries have accounted for a substantial share of aggregate capital deepening during the period, with MFP growth, particularly in the Information and Communication sector also playing a role. Construction and Real Estate activities have experienced negative labour productivity growth over the period.