Productivity in Ireland 2019

Source publication: National Income and Expenditure 2019

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The figure above shows labour productivity for the total economy analysed by MFP and Capital Deepening.  Capital Deepening is further decomposed into Tangible and Intangible contributions and is a new feature of the publication this year. Capital Deepening measures growth in the capital intensity of labour (the amount of capital available per hour worked). The recorded productivity growth of 3.1% in 2019 is linked to an increased contribution of Capital Deepening and a decrease in MFP, which fell from 7.3% in 2018 to -1.4% in 2019.

The increased Capital Deepening and the negative MFP is evident in sectors such as ICT and Manufacturing, where large increases in Capital Deepening associated with globalisation events, particularly in 2015, have also resulted in large falls in MFP. The influence of Capital Deepening has been volatile over the years with negative growth of -1.7% recorded for Capital Deepening in 2018 and a result of 4.6% for 2019. Tangible Capital Deepening remained positive in the years to 2014, with the only negative result recorded in 2013.

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In 2019, labour productivity growth for the Domestic and Other sector was 1.8%, up from 1% in 2018. This result is largely due to the positive contribution from Capital Deepening of 1.2%. This positive contribution from Capital Deepening is explained by strong growth in sectors such as Agriculture and Construction. At the same time, MFP fell from 1.2% in 2018 to 0.6% in 2019. This fall in MFP growth can be explained by negative MFP in sectors such as Electricity, Financial Services and Education.

Looking at the previous years, Capital Deepening has played a strong role in explaining some of the swings in labour productivity over the period. In 2017, Capital Deepening practically explained all of the labour productivity growth in the year.

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 The chart above shows a breakdown of labour productivity from 2000 to 2019 in the Foreign sector and is included here for illustrative purposes only.  As is evident from the above graph, extreme globalisation events took place in the Irish economy in 2015 making the entire series difficult to interpret and analyse. To address this issue, two separate graphs are included below where the Foreign sector are presented for the period 2000-2014 and then for the period 2016-2019. 

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A breakdown of labour productivity growth in the Foreign sector of the economy for the period 2000-2014 is illustrated in Figure 3.4. Evident from the chart above is the fact that all three components of labour productivity growth, namely Tangible and Intangible Capital Deepening as well as MFP have had a relatively similar influence for the majority of years in explaining the swings in labour productivity growth prior to 2015. In 2010 there was a spike in labour productivity growth of just under 20%, while negative labour productivity growth occurred in 2008. Between 2011-2013, as the economy emerged from recession, negative results were reported for labour productivity for consecutive years. These results were largely explained by negative MFP growth, due to reduced capital investment.

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Looking at the most recent years, from 2016 to 2019, labour productivity growth followed an upward trajectory, with MFP explaining most of the growth for the period. In 2019, labour productivity growth of 4.5% was reported, compared to 14% in 2018. This result was mainly due to a significant change in MFP when compared to 2018. An MFP decline of 5.8% was recorded in 2019, down from 17% in 2018. This large drop in MFP was somewhat offset by a large increase in Capital Deepening which grew by 10% in 2019. The majority of the growth in Capital Deepening occurred in the ICT sector, due to increased growth of intangible assets.

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The figure above displays average annual labour productivity growth over the period 2010-2019 for particular sectors of interest. The MNE-dominated Manufacturing and Information and Communications sectors showed the fastest growth, which are impacted by the globalisation events in 2015. Professional, Scientific, Admin and Support Services, as well as Agriculture, also recorded strong growth in labour productivity. The Professional, Scientific, Admin and Support Services 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 Tangible Capital Deepening during the period, largely explained by additions of aircraft to existing fleets or new aircraft fleets entirely. 

The Domestic and Other sector recorded lower levels of growth than the Foreign sector over this period. Accommodation and Food recorded low labour productivity growth over the entire period which was partly due to GVA and labour hours growing at the same rate.  At the same time, Capital Deepening of 1.6% almost entirely explained the positive labour growth in the Wholesale and Retail sector. The Capital Deepening result is in part due to increased investment in fixed assets in the sector, particularly in 2017 and 2019.  The Agricultural sector also recorded positive labour productivity growth of 6.3% in the period to 2019, driven by increased MFP of 4.7%.