This chapter highlights the sources of economic growth in the Irish economy in 2020, as well as some of the unique features of productivity growth throughout the year. The sources of economic growth are discussed, highlighting the key differences between the foreign and domestic-facing sectors of the Irish economy which saw even greater divergence in 2020. The influence of COVID-19 is illustrated by looking at the large swings in quarterly labour productivity growth throughout the year. Finally, the impact of COVID-19 on labour input is discussed, highlighting the significant differences between employment and hours worked. Overall, the year was characterised by large decreases in labour input and the growing influence of the foreign-dominated sectors of the economy.
| agg | Domestic and Other Sector | Foreign Sector | Accommodation and Food Service Activities (I) | Administrative and Support Service Activities (N) | Information and Communication (J) | Manufacturing: Foreign Sectors | Remaining Sectors (A-U excluding, C, F, H, I, J and N) | Transportation and Storage (H) | Capital | Labour | Multifactor Productivity (MFP) | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Ownership Type | -5.03528985270543 | 10.5183192888063 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 5.48302943610091 |
| Sector | 0 | 0 | -0.825943909627848 | -1.04657633736094 | 2.25731661235898 | 8.26100267644737 | -1.99415903838903 | -1.16861056732761 | 0 | 0 | 0 | 5.48302943610091 |
| Input Type | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 4.44432061898384 | -2.76911128613025 | 3.80782010324732 | 5.48302943610091 |
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Gross Value Added (GVA) growth for the total economy was 5.5% in 2020, despite the impact of the COVID-19 pandemic which began early in the year. Figure 1.1 illustrates several different perspectives on the sources of this growth, looking at the contributions of ownership groupings, economic sectors and the inputs of labour and capital.
The graph immediately highlights the difference between the foreign and domestic sides of the Irish economy – the Foreign sector made a large positive contribution of 10.5% to GVA growth, while the Domestic-facing sector made a negative contribution of -5% in 2020. Looking into the sectors which drove GVA growth in 2020, Manufacturing: Foreign made by far the largest contribution (8.3%). This sector is composed largely of companies in pharmaceuticals, chemicals, and electronics which were at the forefront in combatting the Coronavirus. The foreign MNE-dominated ICT sector also made a positive contribution of 2.3%. The largest negative contributions were made by domestic-facing sectors which were subject to lockdowns as the Government tried to prevent the spread of COVID-19 in areas such as Transport (-1.2%) and Accommodation and Food (-0.8%).
GVA growth in 2020 can also be viewed from the perspective of the types of input used to generate the 5.5% growth rate – namely labour and capital. The labour contribution to GVA growth in 2020 was -2.8%, largely due to huge reductions in hours worked (the unit of labour input) on account of the COVID-19 pandemic. The impact on hours worked was concentrated in domestic-facing sectors such as Transport and Accommodation & Food, however the foreign-dominated sectors saw small increases in hours worked. In contrast to the negative labour contribution, the capital contribution to GVA growth was 4.4%. This was almost entirely attributable to additions to the capital stock of ICT assets. The remainder of the 5.5% GVA growth rate was explained by MFP growth of 3.8%. This was due mainly to the influx of intellectual property but also changes in organisational behaviour such as increased working from home.
| Timeperiod | Labour Productivity | Gross Value Added (GVA) | Hours Worked |
|---|---|---|---|
| 2020-Q1 | 11.5108404850408 | 10.4147817629553 | -1.09605872208555 |
| 2020-Q2 | 22.6537187115013 | -1.2714329258298 | -23.9251516373311 |
| 2020-Q3 | 11.8214954036179 | 7.89113739704725 | -3.93035800657069 |
| 2020-Q4 | 11.6147202878164 | 4.65505470619812 | -6.9596655816183 |
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Figure 1.2 illustrates developments in quarterly labour productivity growth throughout 2020 and highlights the considerable swings in growth during the year. In this period, restrictions related to COVID-19 were introduced towards the end of the first quarter. During this quarter, labour productivity grew at 11.5% compared to the first quarter of 2019, with GVA growing by 10.4%.
The most severe impacts of COVID-19 on the economy in 2020 were seen in the second quarter of the year. While GVA only fell by 1.3% compared to 2019Q2, there was a significant fall of 23.9% in hours worked. This resulted in labour productivity increasing by 22.7%, as hours worked fell faster than GVA growth. During the second quarter, many businesses in the Domestic sector were not allowed to open, relying instead on online sales, and the Construction sector remained closed for much of this period. It was in these sectors (such as Construction and Accommodation & Food), that the largest falls in hours worked were observed.
During the third quarter of 2020, an easing of restrictions occurred, however hours worked were still down by 3.9%, while GVA grew by 7.9% largely driven by increased activity in foreign MNE (Multinational Enterprises) dominated sectors. The Construction sector reopened, and many domestic retailers could resume trading, while pubs and hotels in the Accommodation & Food sector still bore the worst of the restrictions.
In the fourth quarter restrictions were again imposed resulting in a more severe reduction in hours worked of 7%. This period of Level 5 restrictions in the economy resulted in many domestic-facing sectors of the economy being worst impacted. While growth in GVA also declined in these sectors, the fall was not as severe as the fall in hours worked, leading to positive labour productivity growth in many sectors.
| Description | Hours | Employment |
|---|---|---|
| Human Health and Social Work (Q) | -6.32713817712142 | 0.423452845996256 |
| Administrative and Support Service Activities (N) | -9.38106909662419 | -15.5042702074244 |
| Transportation and Storage (H) | -10.1552629836239 | -3.66926558621991 |
| Electricity, Gas and Steam (D) | -13.8465887666008 | -6.17830431479038 |
| Construction (F) | -22.2902834569329 | -6.75356719858083 |
| Mining and Quarrying (B) | -29.8466156341629 | -19.2351765572165 |
| Other Service Activities (S) | -31.2780773730433 | -5.10002437120832 |
| Activities of Households as Employers (T) | -43.441253323791 | -31.4194060316583 |
| Arts, Entertainment and Recreation (R) | -48.7866191050718 | -19.9588107091801 |
| Accommodation and Food Service Activities (I) | -58.3708987235242 | -20.879471217643 |
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The final chart in this section shows a selection of the Domestic sectors which were most impacted during the Coronavirus pandemic and compares hours growth with employment growth in 2020. Across many of the sectors, growth in actual hours worked fell more sharply when compared to employment growth. Due to the Employment Wage Subsidy Scheme (EWSS), many employers in sectors such as Accommodation & Food, Construction, and the Arts maintained levels of employment while actual hours worked fell. Consequently, the fall in hours worked was much sharper than the fall in employment in 2020. In the Accommodation & Food sector, for example, hours worked fell by 58.4%, while employment only fell by 20.9%. This illustrates why hours worked are the appropriate measure of labour input for productivity analysis, as using employment would fail to capture the true fall in labour input throughout 2020.
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