Productivity in Ireland 2020

Source publication: National Income and Expenditure 2020

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GVA for the total economy grew by 5.5% in 2020 despite the impact of the COVID-19 pandemic during the year. As is often the case in the Irish economy, the largest driver of this growth was additions to capital (4.4%), which was almost entirely attributable to ICT assets. The labour contribution to GVA growth in 2020 was -2.8%, largely due to huge reductions in hours worked 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.

The remainder of the 5.5% GVA growth rate was explained by MFP growth of 3.8%. This was mainly explained by an influx of intellectual property but may also reflect changes in organisational behaviour such as increased working from home.

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Figure 7.2 decomposes total economy GVA growth into the contributions from the Foreign and Domestic & Other sectors. In 2020, GVA growth of 5.5% was reported with the majority of this accounted for by the contribution from the Foreign sector of 11.1%. The Domestic & Other sector made a negative contribution of 5.7% to GVA growth in 2020. This was due to large falls in GVA for sectors such as Accommodation & Food and Transport. Looking over the period 2011-2020, the Foreign sector has been the major source of total economy GVA growth since 2015.

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Figure 7.3 illustrates a decomposition of GVA growth for each sector in the economy in 2020. Despite GVA growing by 5.5% for the total economy, only four sectors experienced GVA growth: Mining & Quarrying (39.6%), Manufacturing: Foreign (24.6%), ICT (12.9%) and Public Administration & Defence (6%). Negative GVA growth was recorded for almost every domestic sector in the economy, with Transport (-66.2%) and Accommodation & Food (-67.4%) experiencing the largest falls.  As mentioned previously, many of the most labour-intensive and customer-facing sectors had the largest falls in labour input and this was the main contributor to the GVA decline in sectors such as Construction (-14.5%), Arts (-25.4%) and Accommodation & Food (-49.3%).

The contribution of capital to GVA growth was generally the least important factor in explaining GVA growth for most sectors, with the exceptions being ICT (24%), Wholesale & Retail (5.8%) and Professional, Scientific & Technical Activities (-6.3%). Capital growth in the ICT and Wholesale & Retail sectors was explained by imports of intellectual property products, while the negative capital contribution for the Professional, Scientific & Technical Activities sector was caused by a reduction in the capital stock of IP assets.

MFP explained a significant proportion of GVA growth for many sectors in the economy in 2020. Of the sectors presented, Transport (-57.1%) had the largest fall in MFP, driving the overall fall in GVA for this sector. Transport saw substantial reductions in both air and land activity due to the restrictions placed on travel as a result of the COVID-19 pandemic.

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GVA in the Domestic & Other sector fell by 9.1% in 2020, the first fall in GVA in the sector since 2012. The -9.1% contraction was almost entirely explained by a large negative labour contribution of -5.1% and a related fall of 4.5% in MFP. The capital contribution to GVA growth for the Domestic sector in 2020 was 0.5%. 

The Domestic sector was particularly impacted during the COVID-19 pandemic, with sectors such as Accommodation & Food, Transport, Construction, and Arts & Entertainment being the main contributors to the fall in labour input. As many of these sectors are predominately consumer-facing, the series of lockdowns imposed during the year led to large reductions in hours worked. Large falls in MFP were recorded in many Domestic & Other sectors in 2020, particularly in Accommodation & Food and Transport.

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Negative GVA growth of 10.8% was recorded in the Construction sector in 2020, largely explained by the negative labour contribution of 14.5%. This sector was one of the most exposed to the COVID-19 pandemic, with government restrictions impacting project timelines and supply chains.

As the sector experienced intermittent restrictions and closures during 2020, employees were supported by the Employment Wage Subsidy Scheme (EWSS). However, hours worked in the sector fell by 22.3%, leading to the negative labour contribution. The capital contribution to GVA growth in the sector was 2.5%, due to investment in both Machinery & Equipment and Buildings & Structures. MFP grew by 1.2% despite the considerable fall in GVA for the sector in 2020.

Over the ten-year period shown, movements in GVA for the Construction sector have generally been explained by labour, particularly since 2014. MFP growth played a larger role in previous years, as evident in 2011 and 2012, where MFP explained half of the GVA growth as the industry emerged from a complete collapse in activity.

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The Accommodation & Food sector suffered a large fall of 67.4% in GVA in 2020. As for many domestic sectors, most of this decrease was explained by a negative labour contribution of 49.3%. This fall in labour input was due to the prolonged COVID-19 related closures and restrictions that were placed on the sector. As this is a services-based sector and heavily reliant on both domestic and international customers, the series of lockdowns and the introduction of social distancing requirements meant that it had very limited options to trade. While employment in the sector fell by 20.9%, likely due to EWSS support, hours worked fell by 58.4%, resulting in the large negative labour contribution.

MFP in the Accommodation & Food sector fell by 20.5% in 2020, while there was also a small positive capital contribution of 2.4%. The positive capital contribution was due to increased investment in Machinery & Equipment and Buildings & Structures. Prior to the substantial collapse in hours worked and GVA in 2020, labour and MFP were the major drivers of growth in the sector, with relatively few significant capital contributions over the period 2011-2020.

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Figure 7.7 shows a decomposition of GVA growth in the Foreign sector for the period 2011-2020. GVA grew by 20.8% in the Foreign sector in 2020, which was almost entirely explained by MFP growth of 11.8% and a capital contribution of 8.7%. MFP growth was largely driven by Manufacturing: Foreign rather than the ICT sector in 2020.The capital contribution of 8.7% for 2020 was lower than the 21.1% contribution in 2019, because of lower imports of IP in 2020.

Due to the scale of the intangible capital stocks, there is a substantial depreciation charge each year. A fall in capital services is only avoided through very large additions to capital investment. The contribution of labour to the sector is generally of little significance due to the extremely low labour share and in 2020 labour made a positive contribution 0.3%. 

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In 2020, GVA growth in the ICT sector of 12.9% was reported. This was largely explained by a capital contribution of 24% in the sector due to large imports of intellectual property products (IPP) during the year. Large transactions in IPP also occurred in 2017 and 2019 coinciding with very large MFP falls in those years. This same impact is observed in 2020 with MFP falling by 11.5%. Hours worked increased by 2.3% in 2020 resulting in a labour contribution of only 0.4% due to the low labour share of 16.4% in the ICT sector.

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Figure 7.9 decomposes the total economy MFP growth of 3.8% in 2020 into the contributions of each of the sectors in the economy in the year.

The main contributor to the 3.8% MFP result in 2020 was Manufacturing: Foreign (8.9%). This result was associated with a large increase in GVA growth, without a corresponding increase in labour or capital. In contrast to Manufacturing: Foreign, the ICT sector recorded the largest negative contribution to MFP of 2.3%. Unlike Manufacturing: Foreign, this contribution to MFP was due to significant additions to intangible assets as discussed above.

While the foreign MNE-dominated sectors were the largest contributors to MFP growth in 2020, there were also large negative contributions from several Domestic sectors. These sectors were Transport (-1.1%), Administrative & Support Services (-1%), Finance (-0.7%) and Wholesale & Retail (-0.7%). In particular, the negative contribution of Transport to MFP growth was due to the large fall in GVA of 66.2%, with a commensurate fall in profits, while the fall in labour (-10.2%) was not as pronounced. 

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Figure 7.10 shows GVA growth for 2020. Due to the multinational nature of Ireland: Foreign, strong growth and a result of 21% was reported, while Ireland:Total recorded 5.5% growth in GVA. The Domestic & Other sector for the Irish economy recorded a decline in GVA growth of 9.1%, similar to most other EU countries shown in the chart. These negative results can be explained by various lockdowns and restrictions imposed in many countries due to the COVID-19 pandemic. Spain (-11.4%), Greece (-9.4%) and Italy (-9.3%) had the most negative results for GVA growth in 2020.

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Average annual GVA growth for the period 2011-2020 is shown above. In the ten-year period, Ireland: Foreign had the highest annual result of 12.4%. Ireland: Total (5.8%) also had one of the highest growth rates among the countries shown. These results were clearly influenced by the globalisation events from 2015 onwards. Ireland: Domestic and Other records a relatively modest result at 1.9%, just below the EU average. Countries reporting negative results included Greece and Spain.

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An international comparison of MFP growth in 2020 is shown above. Ireland: Foreign (11.8%) reported the highest growth while the Domestic & Other sector (-4.5%) showed the lowest growth among the countries examined. The large difference between the Foreign and the Domestic & Other sector illustrates the two-speed economy in Ireland.

Ireland: Total reported a result of 3.8% for 2020, largely explained by the activities of the Foreign sector. Most of the European countries reported negative results for 2020 MFP growth, with Belgium and Ireland being the only two EU countries to report positive results in 2020.

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Average annual MFP growth for several countries over the period 2011-2020 is shown above. Ireland: Total reported negative MFP growth of 3.7%. This is largely driven by developments in the Foreign sector of the economy, which had the most negative MFP growth of 7.6% over the ten-year period. Ireland: Domestic and Other recorded negative MFP growth of 1%. Italy and the Netherlands also reported negative MFP growth during this period. The largest positive MFP growth was reported for Korea (1.3%) and Canada (1%).