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Labour Productivity - Breakdown by MFP and Capital

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To develop the analysis of labour productivity in the Irish economy, this section continues the focus on labour productivity through the framework of capital deepening and MFP. These indicators supplement the basic measure of labour productivity presented in the previous section. To aide further understanding Table 3.1 is attached below showing the relationship between the different inputs of labour productivity, capital deepening and MFP for certain sectors in 2018. Labour productivity (3) is the sum of capital deepening (4), which is capital services per hours worked and MFP (5), while GVA growth is the sum of hours worked and labour productivity.

Show Table: Table 3.1: Decomposition of GVA Inputs

X-axis labelMultifactor ProductivityCapital DeepeningLabour Productivity
20002.403281273661381.766389770140084.00970337360382
2001-0.717439075209411.883098222939981.13587809878957
20022.082143844175263.455261276232645.50678529593644
2003-2.412278914752852.768977935210670.353444437513795
20040.4070067805829711.985188973441192.32791917539634
2005-2.072632674242192.696190633312020.591859298243147
2006-0.809642089529191.024228721175630.205584598606134
20073.238699978109331.015549083011154.10641528362754
2008-3.36427408520562.71782754034242-0.657963827089514
2009-2.51987225527985.439229537724913.2238437157496
20105.678207424855665.0617906705854511.7861976851709
20110.7371285430556741.270318757876812.03331506333875
2012-2.911268609932861.55795944142602-1.35970742245693
2013-1.1492188047723-0.579775944621486-1.67407111760887
20142.022118464182861.823416008012113.71553688757877
2015-12.510090485660433.952964921119920.5357588158118
20160.4242011172971610.9782245619994641.35804404129742
20174.2144663821326-0.9668462366782763.13159829557976
20187.64570675250382-3.250319925087414.24505259569339

Source publication: National Income and Expenditure 2018 Tables 1-22 and Annex 1 for 1995-2018 (XLS 396KB)

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The figure above shows labour productivity analysed by MFP and capital deepening. Capital deepening measures growth in the capital intensity of labour (the amount of capital available per hour worked). The recorded productivity growth of 4.2% in 2018 is linked to an increased role of MFP and a decreased contribution of capital services. This is explained further in Table 3.1 above, where the decreased capital deepening is evident in Manufacturing, with the result that MFP has increased. A decline in capital deepening has been evident for the last three years, largely due to the decline in capital services, while hours worked has remained steady or slightly increased over the same period. The only year in the series with a negative labour productivity result was 2013 due to negative contributions from both inputs.

X-axis labelMultifactor ProductivityCapital DeepeningLabour Productivity
20000.7523151848923091.471923537180092.1369928955367
2001-0.9135080175687241.480713136031080.553227038200199
2002-1.036016811925462.541941339793351.48921551617462
2003-0.001478710176213571.789376206595981.75809806096234
20041.144441584925051.531926281514832.59314925888905
2005-3.145714292595112.38396374950102-0.719839228026198
2006-1.169945429534680.680017172587789-0.467504285720721
20072.246806318936090.6998641831227932.82951836248115
2008-2.379380441279352.390708186705410.0115537811781863
2009-2.923018490453444.530761696100271.79436030148423
20105.180188208625583.752975092308469.75669263125165
20111.452110091186531.165929782558712.66041155316881
2012-2.953922853154871.05891738086235-1.90759234173513
2013-0.2671223357455-0.443169191135103-0.688065667579352
20140.6983822201761551.810951974543352.42559323829936
20152.076023595870310.05084913785584892.03664080038735
20160.717753808567208-0.2005511642332610.501662697563821
20171.81222535131575-0.7077492417199681.06540673529907
2018-0.07896475883066610.2385397341735570.153790310201107

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In 2018, labour productivity growth was flat, the lowest result since 2013. This absence of growth in labour productivity is explained in chart 2.4, where both hours worked and GVA were growing at the same rate of 3.8%. Strong growth was evident in 2018 as explained in the details of Table 3.1 above, where GVA growth in Wholesale and Retail increased 6% in 2018 while GVA growth in Construction increased 10% on 2017. Labour growth was also recorded in the Public Admin sectors. Looking briefly at earlier years, labour productivity growth followed an increasing path from 2008 until 2010, mainly due to increased capital deepening and increased MFP, particularly in 2010.

X-axis labelCapital DeepeningMulti-factor ProductivityLabour Productivity
20003.412511967590796.657697343865379.75268984868283
20013.09261829622576-0.7037370398454072.31082103541846
20029.1501014233622210.031089683097619.9600363348839
200311.3196691953306-10.05075853041061.34270618195518
20045.62308900595138-1.50247410873444.17215303083627
20055.606236933352072.458405561341257.98422295109318
20064.723132812554820.612802786077355.32002529182172
20074.574606504543138.254808482639713.0795634554099
20080.951357435411427-5.69828665019766-4.72423425490749
20092.40923110960144-0.7188428303077321.67941383773504
201011.92747742847597.0936113784488421.8575906623082
2011-0.318539225175276-1.7502754401799-2.0302315247873
20125.09985548443281-6.1672408952786-1.05328285593678
2013-0.844916549413736-4.1895263878583-4.85221784783799
20141.945199250290055.687218535800257.34372955410356
2015143.686842975211-65.133166228351975.3187966159526
20162.14858230295894-0.8131595249174351.27363424988329
2017-1.591672099152937.852108006582886.01674496723033
2018-8.9298310305443621.310947233118912.1935250270329

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The chart above shows a breakdown of labour productivity to 2018 in the Foreign sector. In 2018, labour productivity grew at 12%, a doubling of the 6% result recorded in 2017. This is mainly due to increased MFP, associated with strong GVA growth in Manufacturing and ICT, very small growth in labour and a reduction in the additions to capital assets. The years 2016 and 2017 saw increases in labour productivity of 1.2% and 6.1%, which reflected results in line with the series prior to 2015.

X-axis labelMulti-factor ProductivityCapital DeepeningLabour Productivity
Water and Sewerage -2.302852461494741.098753674551871.19809134226753
Agriculture Forestry Fishing0.721796849014651.383630498457440.781444036835413
Public Admin and Defence-3.418671684753330.659273206741382-2.38551599016396
Wholesale and Retail-1.677169479763811.863384541156310.241493281859527
Accommodation and Food -0.06555776028101610.1822312440388020.379324941716814
Professional Scientific,
Admin and Support Services
-1.99123910347736.140052516604343.49516003134439
Information and
Communications
-0.1029460450786618.657448564039188.09020115691636
Manufacturing-1.859512586369211.68969216909557.60384017968729

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The figure above displays annual average labour productivity growth over the period, with the Manufacturing sector and Professional, Scientific and Support services sector showing the fastest growth. Information and Communication has also shown strong growth in labour productivity. The continued high productivity achieved in the MNE dominated sectors of Manufacturing and ICT is evident from the chart. The Professional and Scientific sector comprising both Foreign and Domestic and Other activities, such as Aircraft Leasing, Research and Development and Legal and Accounting activities, accounts for a substantial share of aggregate capital deepening during the period, largely explained by additions of aircraft to existing fleets or new fleets entirely. The Domestic and Other sectors recorded lower levels of growth and are at the left side of the chart. Accommodation and Food recorded low growth over the period. This is partly due to GVA growth and hours growing at the same rate over the period, while capital deepening contributes to the positive labour growth in the Wholesale and Retail sector. The positive contribution of capital deepening is in part due to increased investment in fixed assets in the sector, particularly in 2017. In comparison to Wholesale and Retail, the Agricultural sector also recorded positive labour productivity growth of 0.7% in the period to 2018, driven by increased capital deepening. This increase could be due to the increased investment in farm machinery and equipment as farmers increased their use of technology over the eighteen-year period.


Go to the next chapter: GVA and the Labour Share