Productivity in Ireland 2019

Source publication: Macroeconomic Scoreboard

Get the data: PxStat PIA09

The growth in nominal ULC for the total economy from 2000 to 2019 is shown in the graph above. Prior to 2007, growth in nominal ULC exceeded 0%, indicating the decreased competitiveness in the Irish economy. Since 2007, growth in nominal ULC was below 0%, for the majority of years, indicating the economy was going through phases of increased competitiveness. In 2019, ULC growth increased, the first time since 2016 and recorded a result of 0.9%. This is an indication of the decreased competitiveness that the Irish economy experienced in 2019. This was mainly driven by lower GVA growth for the total economy of 5.4% in 2019, compared to 9.2% in 2018 with a relatively unchanged hourly wage.

Get the data: PxStat PIA09

The chart above shows the growth in nominal ULC for the whole economy and examines the relationship between nominal labour compensation and labour productivity. In 2019, nominal labour compensation grew by 4.0% up from 1.9% in 2018, while real labour productivity growth fell from 5.7% in 2018 to 3.1% in 2019.  As hourly wage growth outstripped labour productivity growth, this led to an increase in nominal ULC of 0.9%, which was associated with a decrease in Ireland’s competitiveness. Ireland’s competitiveness peaked in 2015, although this was associated with the globalisation events where there was an extraordinary increase in real GVA while employment and COE remained broadly unchanged.    

The graph also highlights the decreased competitiveness in the years prior to 2008 associated with increased growth in hourly compensation and linked to increased wage inflation in that period. However, the increased competitiveness since 2009 has been linked to falling wages and a low-inflation environment, while some globalised sectors are becoming more capital intensive, such as the ICT and Manufacturing sectors due to increased imports of intellectual property products (IPP).

Get the data: PxStat PIA09

ULC growth in the Foreign-dominated sector has been much more volatile than in the Domestic and Other sector. In 2019 hourly wage growth was 7.8%, while real labour productivity fell to 4.5% in 2019. As hourly wage growth increased faster than real labour productivity, the sector experienced decreased competitiveness, similar to the overall economy. The slower labour productivity growth is on the back of weaker GVA growth for sectors such as Manufacturing and ICT, when compared to 2018.

In general, the Foreign sector has had large and intermittent decreases and increases in nominal unit labour cost over the period 2000-2019.  For example, there was a 14% decrease in ULC in 2002, largely due to an 18% increase in labour productivity, while 2009 was the only year where growth in hourly compensation was largely negative. Looking over the entire nineteen-year period the graph highlights the volatile nature of ULC for the Foreign sector.

Get the data: PxStat PIA09

Nominal ULC growth in the Domestic and Other sector is illustrated in the above graph. In 2019, nominal ULC experienced the largest growth since 2016, which was also associated with decreased competitiveness. In 2019, hourly compensation grew by 3.2%, up from 1.1% in 2018. Labour productivity growth on the other hand, increased from 1.0% in 2018 to 1.8% in 2019. Similar to the total economy, the Domestic and Other sector experienced decreased competitiveness in the early 2000’s due to strong hourly wage growth and weaker labour productivity growth. The post crisis period, however, had lower levels of hourly wage growth, which has been increasing steadily since about 2016, leading to volatility in ULC growth.

Get the data: PxStat PIA09

The chart above shows growth in ULC in some of the Domestic and Other sectors in 2019. Water Supply and the Wholesale and Retail sector were the least competitive with growth in ULC of 6.4% and 4.4% respectively. The Construction sector as well as the Financial sector were the most competitive, with declines in unit labour cost of 1.0% and 0.6% respectively. The Construction sector recorded growth in hourly compensation of 4.7% and labour productivity growth of 5.7%, leading to a fall in the growth of nominal ULC. The Financial sector reported a decline in labour productivity growth of 0.8%, while a fall in hourly compensation of 1.4% was recorded. As labour productivity grew faster than hourly wage growth in these sectors, Construction and the Financial sector were the most competitive in 2019.

Get the data: Eurostat

Average growth in nominal ULC for Ireland compared to the rest of the EU for the period 2010 to 2019 is illustrated in the above graph. Ireland - Foreign had an average annual decrease in its ULC of 5% over the period, the most negative result in the EU. This result was mainly driven by the globalisation events, which recorded dramatic increases in GVA in 2015, with very little impact on wages. However, a careful interpretation of competitiveness is required for the Foreign Sector in Ireland, particularly in this example. The onshoring of IPP has resulted in dramatic increases in income flows which are driving down unit labour costs, compounded by no significant change in employment being associated with these balance sheet developments. Of the countries examined, Ireland was the most competitive, with the result of -2.3%[1] . Ireland - Domestic and Other was closer to Portugal, Denmark and Spain, with a growth in ULC of 0% which arguably gives a more accurate reflection of competitiveness in the underlying economy.

[1] CSO estimates are included for Ireland to allow subsectors Ireland-Foreign and Ireland-Domestic and Other to be calculated.