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Executive Summary

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Productivity in Ireland 2018 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[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 done 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 for a number 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 sectors of 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 result in limited gains for Irish households. The results for foreign MNE dominated sectors can also have a significant impact on the overall results for the Irish economy.

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 on KLEMS and QALI[4] in last year’s publication. This focus 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 case of KLEMS 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 analysis on MFP and Intangible assets.

Key findings for the period 2000 to 2018:

1 - Overall labour productivity for the period 2000 to 2018 increased by an annual average of 3.4% (2.4% for 2000 to 2014). For the latest year the result is 4.2%.

2 - Multi-factor productivity for 2018 increased by 8% which compares favourably with other EU countries.  For the entire period, 2000 to 2018, there is considerable volatility resulting in no overall change in MFP over this eighteen-year period.

3 - Manufacturing and Information and Communications showed the largest growth in labour productivity in 2018 at 9.7% and 20.2% respectively.

4 - Ireland has a relatively low labour share and is consistently below the EU 27 average. Recent results are impacted by the high level of IP additions to Ireland’s capital stock despite an overall steady growth in compensation of employees (COE). The labour share reached a series low of 0.31% in 2018.

5 - Ireland’s capital stock per employee has increased from 157 thousand euros per employee to 390 thousand per employee between 2000 and 2018, an increase of 150%

Foreign v Domestic and Other sector breakdown in the Irish economy - Key results

1 - In the Domestic and Other sector Labour productivity growth in 2018 was 0.2%, the lowest since 2013. This was due to both hours and GVA growing at approximately the same rate of 3.8% in 2018.  For the foreign sector in 2018 a result of 12.2% was recorded.

2 - Annual average growth in Capital stock for the Domestic and Other sector was 4.5% for 2000 - 2018. For the Foreign sector for the same period growth was 14.2%.

3 - For Multifactor productivity in the Domestic and Other sector the average annual growth was 0.1% for the period to 2018 and -0.2% when the impact of 2015 is excluded. Foreign sector MFP shows major changes between the two periods with an average annual result of -1.4% to 2018 and +0.7% when the impact of 2015 is excluded. This is explained by the substantial negative MFP result for 2015.

International Comparisons - Key results:

1 - Among the original 15 EU member states (who report results) that joined the EU prior to 2004, the Domestic and Other sector experienced the largest increase in labour productivity of 1.5%. The Foreign sector in the Irish economy had average annual labour productivity growth of 9.3% over the same period.

2 - Ireland had one of the highest levels of growth in nominal Unit Labour Costs from 2000 to 2008, but this result was reversed with the largest cumulative fall in nominal Unit Labour Cost over the entire period 2000 to 2018 for the economy as a whole and for both the Foreign Sector and the Domestic and Other Sector.

3 - Ireland had the highest annual average growth in capital stocks of 6% in the period to 2018, for countries who have reported data. For the Irish Domestic and Other sector, the equivalent growth rate was 5% and for the Foreign sector was 14%. The rate of increase in capital stocks for the Czech Republic was higher than the Domestic and Other sector but lower than Ireland and Ireland – Foreign Sector. 

[1] See 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] KLEMS is Gross Output broken out into Energy, Materials, Services, Capital and Labour and MFP.  QALI is Quality Adjusted Labour Input.


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