Productivity in Ireland 2020

Productivity in Ireland 2020 presents the latest analysis by CSO of productivity developments in the Irish Economy. Notably, on this occasion there is a particular focus on the impact of the COVID-19 pandemic on Irish productivity indicators. These include basic Labour Productivity along with a variety of other indicators that incorporate developments in Capital utilisation and in the efficiency of production processes. Additional level indicators of productivity have also been included to present a clearer and more striking picture of the very different productivity performances across the sectors of the economy. The experimental but more comprehensive KLEMS and QALI indicators are also presented. International comparisons with our partners in the European Union and beyond continue to be an important feature of this report.

Estimates of the impact of COVID-19 on productivity across the sectors of the economy in 2020 reveal some very interesting results. There were very different outcomes for key sectors; some produced more output than ever before, adding hugely to productivity measures.  At the same time other sectors were either closed-down or were operating in line with the tight government restrictions resulting in mixed productivity outcomes. For some sectors that were more seriously impacted by COVID-19, this resulted in employment declining faster than output leading to positive productivity results. For other sectors, the fall in GVA exceeded the labour reductions with negative productivity recorded. In addition, the impact of the government employment subsidy scheme (EWSS) had a significant influence on these results.

The structural distinction between foreign ownership and domestic ownership in sectors of the economy is critical to understanding productivity developments in Ireland. Increases in productivity growth are generally associated with improvement in living standards. However, in the case of the Irish economy, productivity indicators must be carefully interpreted. There are instances of very high productivity growth in Foreign-dominated sectors that result in limited spill-overs into more Domestic sectors and in limited gains for Irish households. These sectoral results for Foreign-dominated groupings can also have a significant impact on the overall results for the Irish economy.

In 2020 there were significant imports of intellectual property products continuing a trend established since 2015.  These imports amounted to almost €80bn and there was a corresponding addition to the Capital Assets of Foreign-owned MNEs. These additional IPP assets do not have an immediate significant impact on GVA or the labour market. As a result, a fall in MFP occurs to offset the rise in Capital Services.

In addition to including results for 2020, work on consolidating the analysis presented in previous reports on KLEMS and QALI has continued in this report. In the case of QALI the presentation has been extended and it shows more clearly the impact of age and education on this indicator. To better quality assure the estimates, a ten-sector model of the economy is used rather than the twenty-one-sector presentation provided elsewhere in the publication. The KLEMS analysis highlights the significance of intermediate inputs of Energy, Materials and Services in explaining changes in productivity and adds to the message regarding the drivers of productivity in Ireland. 

Finally, there are interesting analytical pieces this year including a digitalisation section in the Innovation and Digitalisation chapter. In this case we have again leveraged existing data compiled by our colleagues in CSO’s Business Statistics Directorate to give an improved context for the results presented in this report.

Key findings in 2020

• Overall Labour Productivity in 2020 increased by 14.1%. Labour Productivity was -56% for Transport and -9% for Accommodation & Food, two of the sectors most impacted by COVID-19.
• Due to prolonged lockdowns and restrictions on opening hours associated with the COVID-19 pandemic, the Transport (€20 per hour) and Accommodation & Food (€17 per hour) sectors were among the least productive in 2020.
• Manufacturing: Foreign and Information & Communications showed the largest growth in Labour Productivity in 2020 at 21.9% and 10.6% respectively.
• Multi-factor Productivity in 2020 increased by 3.8%.
• Ireland’s capital assets per employee has increased from €287,000 per employee to €490,000 per employee between 2011 and 2020, an increase of 71%.

Foreign v Domestic and Other Sector Breakdowns in the Irish economy - Key Results

• In the Domestic and Other sector, Labour Productivity growth in 2020 was 0.7% while in the Foreign Sector it was 18.2%.
• Looking at levels of Labour Productivity in 2020 the MNE-dominated Manufacturing: Foreign (€631 per hour) and Information and Communications (€322 per hour) were the most productive compared to the Domestic & Other sector (€51 per hour).
• Average annual growth in Capital Services for the Domestic and Other sector was 4.8% for 2011 - 2020. Average growth in the same period for the Foreign sector was an extraordinary 23.1%.
• In 2020, Multifactor Productivity was 11.8% for the Foreign sector and -4.5% for the Domestic and the Other sector. Average annual MFP growth in the Foreign sector was -7.6% over the period 2011-2020, while MFP in the Domestic and Other sector was -1% for the same period.

 International Comparisons - Key Results for the Period 2011- 2020

• The Domestic and Other sector had an increase in Labour Productivity of 0.7% which was below the EU average (1%) and more in line with Spain, Belgium and France. The Foreign sector in the Irish economy had average Labour Productivity growth of 18.2%, a clear indicator of the impact of globalisation events on labour productivity in Ireland over the period.
• While the labour share for Ireland declined further in 2020 to 32%, it increased for many other EU countries. Germany and Denmark had consistently the highest labour share since 2011, with results ranging between 56% and 61%.
• Ireland had the highest level of Capital Assets per Employee in the EU in 2020 of €490,000, followed by Luxembourg (€448,000) and Austria (€353,000). Compared to 2011, the only countries not showing an increase in Assets per Employee were Belgium, Malta and Slovenia.