Productivity in Ireland 2016

Source publication:  National Income & Expenditure Annual Results

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Overall labour productivity for the period 2000 to 2016 increased by an annual average of 4.5 percent (3.4 percent for 2000 to 2014). For the year 2016, the result is 2 percent. There was a gradual downward trend in labour productivity from 2000 to 2008. The post-crash period was characterised by strong increases in labour productivity due to the layoffs of workers, particularly in sectors such as Construction, Real Estate and Distribution, Transport, Hotels and Restaurants. A short period of labour hoarding by employers in 2008 was followed by these large layoffs of employees in the wake of the collapse in the Construction sector in 2008. The extreme globalisation-related events of 2015 in the Irish economy result in a further spike in labour productivity in the period 2014 to 2016.

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As mentioned above, labour productivity showed a gradual downward trend in the period 2000 to 2008. In overall terms, GVA growth and growth in hours and employment all rose at rates of close to five percent. The year 2008 shows evidence of labour hoarding, with GVA growth declining faster than hours worked, resulting in falling labour productivity. The substantial productivity improvement between 2009 and 2011 was due to hours worked falling at a faster pace than GVA, while in 2010 and 2011 hours worked actually increased but GVA increased at a faster rate.

Labour productivity growth is practically unchanged in 2012 due to negligible growth in GVA and labour hours. However, labour productivity declined in 2013 as labour growth outstripped that of GVA in 2013. GVA grew by 26 percent in 2015 as a result of major globalisation events causing a 23 percent increase in labour productivity, i.e. change in total GVA per hour worked. GVA growth substantially exceeded labour growth in 2014 and 2016, which explains the increased labour productivity.

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The chart above shows labour productivity for the Domestic and Other sector of the economy. Labour productivity grew relatively consistently between 2000 and 2004 as a result of GVA continually exceeding increases in labour hours worked. There was a significant fall in labour productivity growth between 2005 and 2008, explained largely by the developments in the Real Estate and Construction sectors. Productivity growth was zero in 2005 as a result of hours and GVA both growing at 6 percent. In the following years, labour hours declined while GVA growth remained stable, resulting in lower levels of productivity growth. Labour hours worked fell from 2008 to 2012. The fall was particularly sharp in 2009 with a decline of over 10 percent. GVA growth declined in 2008 and 2009 and was positive in 2010 and 2011, resulting in positive labour productivity growth. GVA declined at a faster rate than labour hours in 2012, causing falls in productivity, while the fall in productivity in 2013 was a result of labour growth exceeding growth in GVA. Labour productivity growth has tended to be higher in the period since 2014.

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For the Foreign sector, labour productivity up to 2014 has followed a very different pattern compared to the Domestic and Other sector (see above). Productivity growth in the Foreign-dominated sector has been significantly higher than the Domestic and Other sector, due to the high concentration of multinational enterprises (MNEs) operating in this sector. Labour productivity grew by over 20 percent in 2002 and 2011, and in both cases this growth was caused by a fall in labour hours and increases in GVA. The Foreign sector had a sharp decline in productivity growth in 2003, probably due to the end of the dotcom bubble, as many of the foreign MNEs were technology firms.

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Extreme results for labour productivity are observed in 2015 where growth of 80 percent occurred in the Foreign-dominated sector. This is explained by the relocation of large multinational companies to Ireland.

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Irish labour productivity grew by the fourth-largest amount in the EU28 since 2000. Higher results were recorded for post-2004 accession countries Lithuania, Latvia and Romania.

The Domestic and Other sector experienced the largest increase in labour productivity among the 15 EU member states that joined the EU prior to 2004. The Foreign sector in the Irish economy had cumulative growth that was far larger than the overall growth in any EU country.

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Labour productivity growth has not been uniform across the sectors of the economy during the period 2000 to 2016. Industry and Information and Communication have seen significant rises in labour productivity over this period, with the result that the Industry sector has become four times more productive in 2016 than in 2000, while the Information and Communication sector is three times more productive. In this period, labour productivity in Financial and Insurance activities increased by just over 50 percent, while productivity in Public Admin, Education and Health increased by nine percent. Construction has seen almost no change in productivity over this entire period. In overall terms, GVA per hour worked for the whole economy has doubled between 2000 and 2016.

A large proportion of the growth in labour productivity associated with the Industry sector occurred between 2014 and 2016, driven by the globalisation events in 2015. Information and Communication was the second-largest growing sector, with labour productivity increasing by a factor of 2.5 between 2000 and 2016. Labour productivity in the Financial Services sector increased by less than the overall economy and Public Admin, Education and Health remained relatively steady over the period.

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The charts above and below show average annual contributions to total labour productivity (GVA per hour) growth in the whole economy, using the standard ten-sector presentation of the economy. Industry made the largest contribution to overall labour productivity growth over the period up to 2014. This was followed by Information and Communication and by Professional, Administration and Support services. Real Estate made a slightly less negative contribution to growth in the period up to 2014 than in the period up to 2016. The Arts and Entertainment sector made a bigger contribution than the Agricultural sector to growth in the period to 2014 than in the period to 2016.

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In the period to 2016, Industry has made the largest average contribution to total productivity growth, followed by Information and Communication and Professional, Admin and Support Services, although the large additions from GVA to Industry in 2015 should be noted. The only negative contribution to total productivity growth over the period was from the Real Estate sector, while the Construction sector contributed very little over the entire period.