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 across the economy; 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, it 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 improvements 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 IP 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.
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 some new and interesting analytical pieces added 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.
Looking at the Publication chapter by chapter; the first part of the publication presents an overview of productivity growth in 2020 analysed by the three main factor inputs – Capital input, Labour input and Multi-factor Productivity (MFP).
Chapters 2 – 5 and Chapter 7 are the core productivity accounts for Ireland. These accounts are produced following a well-established approach recommended by OECD in their Productivity Manual. Chapter 2 explains the growth in Labour Productivity from a sectoral perspective. Firstly, it describes the changes in labour productivity in terms of hours worked and Gross Value Added produced. It then illustrates how labour productivity has evolved in the Foreign sector and the Domestic and Other sector of the economy. Finally, it explains how Labour Productivity has evolved in the twenty-one (A21) main sectors of the economy.
The third chapter describes the developments in Labour Productivity caused by changes in the Capital Intensity of Labour, or Capital Deepening, and MFP. The Capital Intensity of Labour is the amount of capital used in the economy per hour worked.
The fourth chapter presents analysis of the GVA Labour Share. The labour share is defined as the proportion of GVA growth attributed to labour with the remainder being attributed to capital. Within this chapter, a number of presentations of the labour share are set out as well as international comparisons.
In Chapter 5, an analysis of Unit Labour Costs (ULC) is presented, for comparative purposes, as an alternative measure of Labour Productivity. The results align closely with the labour productivity results in previous sections.
Chapter 6 explains the importance of Innovation which is a key driver of productivity in the economy. In this chapter we have 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. Interesting information on Innovation and some new presentations on digitalisation across various sectors of the economy are included.
Chapter 7 presents a comprehensive productivity analysis that examines growth in the economy in terms of Labour, Capital and MFP. It follows the same sectoral presentation format as earlier parts of the publication.
The eighth chapter focuses on the importance of Capital in the Irish economy. It explains the growth in Capital Assets in Ireland in an international context, and the services generated by these Capital Assets, i.e. Capital Services.
Chapter 9 reports further progress in estimating productivity on a KLEMS basis drawing heavily on CSO’s historic series of Supply and Use Tables and on the publication Output and Value Added by Activity 2020. A full sectoral analysis in the KLEMS framework is presented for the Irish economy.
In Chapter 10 further progress has also been achieved with the latest estimates of Quality-adjusted Labour Input (QALI). In this analytical framework, Labour input, which is estimated in the core accounts based on changes in hours worked, is supplemented by details on education, gender, age and economic sector of activity to produce estimates of Quality-adjusted Labour Input. These QALI estimates are classified as experimental.
The results in this publication are produced in an incremental way as we consider how to best measure and assess productivity developments in Ireland. A key objective is to help users understand the impact globalisation has on productivity measures. The data used in the analyses can be found on PxStat, the CSO’s databank, and can be used to create and develop further productivity analysis. The main productivity indicators can be found in the Tables chapter at the end of this publication. Further information on the methodology used in the publication can be found in the Appendix.
