The following section is a new addition to this year’s publication and shows the labour share in various individual sectors of the Irish economy, as well as in the Foreign, Domestic and Other and Market aggregate sectors. The labour share is defined as the proportion of GVA growth attributed to labour with the remainder being attributed to capital. The labour share reflects the proportion of national income received by workers in the form of wages and salaries. A falling labour share often reflects an increase in the return to capital.
The increased globalisation of the Irish economy has resulted in ongoing additions to the Capital Stock and in particular additions of intangibles such as Intellectual Property Products. This chapter highlights the impact that this trend in investment has on the labour share of value added in the economy.
|X-axis label||Manufacturing||Construction||ICT||Accommodation and Food||Wholesale and Retail||Finance|
Get the data: Statbank PIA05
The chart above shows the labour share in the Irish economy across both Foreign and Domestic and Other sectors. Since 2009, these two sectors follow a declining trend, with a large dip occurring in 2015 in the Manufacturing sector as the labour share fell to 11%. This decline in the labour share in Manufacturing is due to increased globalisation events which have added to the capital stock of intangibles. These additions to the capital stock in 2015 resulted in large increases in profits being earned with no real impact on wages. Consequently the labour share has declined significantly.
The ICT labour share sector has followed a similar trend to Manufacturing. This sector did not experience the same globalisation related activities as Manufacturing in 2015. Over the entire period from 2000 to 2018 the ICT labour share remained above that of the Manufacturing sector. This has occurred despite significant additions to intangibles in 2017. However, as the sector is very capital-intensive, the labour share in ICT has fallen from 40% in 2001 to 22% in 2018 as successive additions to capital and resulting increases in profitablilty have occurred. These changes have not resulted in corresponding increases in wages and employment.
The labour share increased in the Financial Sector from 2011 to 2013, peaking at 53% in 2013. This peak coincided with a 23% fall in profits and a 3% fall in wages. Since 2013 the labour share has been declining, to some extent at least due to corporate restructuring in the sector. Banks and similar institutions becoming more automated, reducing their Branch networks and together with an increasing amount of transactions being done online, have resulted in increased profits and a decreasing trend in wages paid.
The Construction sector was hit severely during the financial crisis period from 2008 to 2012. The reason for the labour share of 100% during this period is because of huge losses being incurred in the sector and consequently no GVA or profits being earned by the owners of capital. In subsequent periods the sector has recovered and recorded a labour share of 73.4% in 2016 consistent with pre-crisis levels, however the share has declined with a result of 65.5% in 2018. This is due to greater automation in the sector and possibly due to recent difficulties in hiring workers. These developments are reflected in lower COE significantly below the pre-crisis wages while profits in 2018 have risen to the highest level since 2007.
Similar to the Construction sector, the Accommodation and Food sector experienced heavy losses during the recession. In 2010, the sector recorded a labour share result of 100%, consistent with companies and individual hotels in the sector reporting large losses. Prior to 2010, labour share levels of between 74.8% and 96.5% in this labour-intensive sector were reported. Due to strong growth in wages and employment. since 2010, the labour share has remained between 80% and 90%, consistent with pre-recession levels of growth.
|X-axis label||Foreign||Domestic and Other||Total|
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The chart above shows the labour share broken into the Foreign dominated and the Domestic and Other sectors. As expected, the labour share in the Domestic and Other sector lies above that of the foreign dominated sector. The Domestic and Other sector is traditionally dominated by sectors such as Accommodation and Food, Agriculture and Wholesale and Retail which are typically more labour intensive. The foreign dominated sector consists mostly of Manufacturing and ICT activities which are largely capital intensive and typically don’t rely on labour to the same extent. A noticeable fall in the labour share occurred in 2015, with the foreign dominated sector declining from 23% to 11% labour share in that year, largely related to globalisation-based activities. As a result, the sector recorded additional substantial profits with no significant change in wages paid.
|X-axis label||Market||Non Market||Total|
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The chart shows the labour share in the Market and Non-Market sector. The labour share for the non- Market sector, which consists of Real Estate, Public Admin, Education and Human Health remained at between 55% and 70% with the labour share dipping between 2009 and 2011 due to reductions in numbers employed in Education and Health. It’s important to note that in the public sector, total value added is the sum of the wages and depreciation, hence the ratio is the same as the level of employment. The presence of Real Estate in the non-Market sector reduces the labour share due to the relatively large profits associated with the sector, linked to imputed rents which are recognised as operating surplus or profits. The Market sector which includes all other economic activities follows a trend very similar to that of the total economy, with the declines in labour share in the Market sector mirroring the declines in labour share in the total economy. This is as expected as the Market sector contains many globalised and capital-intensive industries.
|X-axis label||Ireland||Denmark||Austria||Netherlands||Luxembourg||EU 28|
Get the data: Eurostat
The chart above shows Ireland compared with its international counterparts in terms of labour share. The data on each country’s GVA and Compensation of Employees (COE) has been obtained from Eurostat. Elsewhere in the publication the labour share of GVA is estimated using the OECD’s methodology (see appendix for more details). In this section, the Labour share has been calculated as the ratio of COE to GVA ensuring consistency when comparing with our EU counterparts. The chart shows how since 2000 Ireland has had a relatively low labour share consistently below the EU 28 average. Despite a steady increase in labour share between 2000 and 2009, Ireland’s labour share has followed a consistent decrease between 2010 and 2014 and reached a low of 31% in 2018. The sudden drop in the trend in labour share in 2015 is a result of Ireland’s imports of Intellectual Property which increased capital stocks and in turn generated increased levels of GVA. This sharp increase in GVA resulted in a decreased labour share despite an overall steady growth in COE. The imports of IP have increased capital stocks to such an extent that by 2018 the labour share reached a series low of 31%.
 Elsewhere in the publication, labour share has been calculated using GMI, GOS, Taxes and Subsidies. The COE/GVA method has been employed in our international comparisons analysis due to unavailability of a disaggregated series on GMI and GOS on the Eurostat database. Please see appendix for full details and methodology on how the labour share has been calculated in the sectoral analysis.
Source Publication: Estimates of the Capital Stock of Fixed Assets 2018
Get the data: Statbank CSA02
The graph above shows the trend in capital stock broken out by the Foreign and Domestic and Other sectors in the Irish economy. The large increase in the Foreign sector capital stocks from 2015 onwards is well documented. Many US multinational corporations dominate these Foreign owned industries and the large additions of capital to their balance sheets from 2015 onwards in industries such as Manufacturing and ICT was a result of large imports of Intellectual property and corporate relocations. These large imports of IP have resulted in significant increases in profits being generated in the Manufacturing and ICT sectors. However, with employment and COE relatively unchanged they are skewing Ireland’s labour share. As we can see in the capital stocks chart above, the capital stock in the Foreign sector has remained high until 2018 and has affected the most recent estimates. It is important to analyse COE and GVA by industrial sector as this will illustrate how these large increases in capital stocks have impacted our labour share analysis.
|X-axis label||Manufacturing||Information and Communications||Total COE|
The years of 2009-2012 saw large layoffs in various industries thus lowering the labour share. The labour share decreased by 11% between 2014 and 2015, as evident in Chart 4.2. Despite this, wages grew steadily, increasing by 3% in 2015. As is evident above, the growth in total wages has remained consistent for the remaining three years, growing at 6% each year until 2018.
|X-axis label||Manufacturing||Information and Communications||Total GVA|
The labour share trend of 2015 is largely explained by the fact that real GVA grew by 31% in 2015 because of large inflows of capital stock due to the globalisation of events of that year. The chart above showing GVA growth between 2000 and 2018 shows that this large growth in GVA is largely concentrated within Manufacturing as GVA grew by 85% in 2015 in this sector. The high concentration of GVA growth in Manufacturing because of large inflows of capital has resulted in a negative impact on the labour share between 2015 and 2018. The labour share for the total Irish economy decreased sharply in the period after 2015 because of the large increases in GVA leveraged off the increased capital base of MNEs in the foreign dominated sectors between 2015 and 2018.
Source Publication: Institutional Sector Accounts
The pie charts above depict the Domestic and Foreign contributions to GVA and wage growth in Ireland in 2018. The domestic sector accounts for 85% of the total remuneration of the Irish labour force while the Foreign sector only accounted for 15%. While the foreign sector contributes only 15% to COE, it contributed 42% to GVA in Ireland in 2018. This shows how the large capital stocks in the foreign dominated industries are driving the downward trend in Ireland’s labour share because of their impact on total GVA. In 2014, prior to the globalisation related events foreign owned industries explained 25% of total GVA. This emphasises the influence of these highly concentrated industries on the labour share in Ireland over this period.
 The data presented is based on Foreign dominated sectors and Domestic and Other Sector rather than total Foreign-owned and Domestic owned.
|Total COE 2018|
|Total GVA 2018|