This release was compiled during the COVID-19 crisis. The results contained in this release reflect some of the economic impacts of the COVID-19 situation. The full series of information notes on the implications of COVID-19 on the National Accounts can be found on our Information Notes page.
Output in an economy is the result of the combined contributions of both labour and capital. The labour share is the proportion of Gross Value Added (GVA) attributed to labour (in the form of wages, social benefits and self-employed income) with the remainder being attributed to capital (as profits). An increasing labour share is associated with an increase in returns to labour i.e. higher wages, more entrants into the labour force or decreasing returns to capital. On the other hand, a decreasing labour share implies that workers are receiving relatively lower compensation for their output which could also be explained by increases in profits.
The Irish labour share has been heavily influenced by the activities of foreign-owned multinational enterprises (MNEs) in the economy on account of the high concentration of intangible capital assets in these companies. The Foreign sector accounted for only 17% of Compensation of Employees (COE - Wages) in comparison to 66% of Gross Operating Surplus (GOS – Profits) in 2021.
As a result of the rapid growth of the Foreign sector, particularly since 2015, Ireland has had a very low labour share when compared to many EU countries. Additionally at a sectoral level, there have been shifts in the labour share in the last two years associated with the COVID-19 pandemic.
| Description | Capital Compensation | Labour Compensation |
|---|---|---|
| Agriculture, Forestry & Fishing (A) | 60.7 | 3.5 |
| Arts, Entertainment & Recreation (R) | 42.7 | 18.5 |
| Financial & Insurance Activities (K) | 28.7 | 7.9 |
| Manufacturing - Domestic | 26.8 | 10 |
| Information & Communication (J) | 18.4 | 16.3 |
| Manufacturing - Foreign | 17.6 | 8.3 |
| Wholesale & Retail (G) | 16.4 | 10.1 |
| Public Administration & Defence (O) | 9 | 4.5 |
| Human Health & Social Work (Q) | 7.8 | 8.8 |
| Professional, Scientific & Technical Activities (M) | 7.7 | 12.6 |
| Water Supply, Sewerage & Waste Management (E) | 7.4 | 14.4 |
| Education (P) | 2.4 | 5.9 |
| Accommodation & Food Service Activities (I) | 0 | 3.4 |
| Electricity, Gas & Steam (D) | -2.4 | 1.4 |
| Construction (F) | -3 | 11.5 |
| Administrative & Support Service Activities (N) | -6.9 | 9.4 |
Get the data: PxStat PIA15
Figure 7.4 shows that there were substantial changes in both labour compensation (wages) and capital compensation (profits) in 2021. Labour compensation is the proportion of GVA that is earned by labour, through wages, social benefits and self-employed income while capital compensation is the value of profits earned by companies.
Following falls in 2020, most Domestic sectors recorded strong growth in labour compensation in 2021 e.g. Arts (18.5%), Construction (11.5%) and Wholesale & Retail (10.1%). Strong growth was also recorded in the foreign sectors of ICT (16.3%) and Manufacturing – Foreign (8.3%).
Arts & Entertainment had one of the largest increases in capital compensation in 2021 at 42.7%, however this was due to a rebound in profits after a prolonged closure of the sector in 2020. Other sectors that experienced large growth in profits include: Financial & Insurance (28.7%), ICT (18.4%) and Manufacturing - Foreign (17.6%). Electricity, Gas & Steam (-2.4%), Construction (-3%) and Admin & Support (-6.9%) all experienced falls in profits in 2021.
Get the data: PxStat PIA15 (Irish Data) and Eurostat (Gross Value Added and Compensation of Employees)
The chart above provides a sector comparison of the labour share for a selection of similar-sized countries in 2021, where the labour share for European countries has been calculated as the share of wages over GVA2. Ireland’s labour share (29.1%) was below the EU average of 53.4%. In general, Ireland had a labour share above the EU average for domestic sectors such as Accommodation & Food and Transportation & Storage. Many of the sectors considered to be largely capital intensive in Ireland such as Manufacturing, ICT and Admin & Support were far below comparable EU countries shown above. This is mainly explained by the onshoring of IPP and aircraft leasing activities.
2 For European Countries (and the EU average) an approximation of the labour share is estimated as COE/GVA in current prices. This does not take account of the adjustment for Mixed Income and Net Taxes and so likely understates the labour share for these countries.
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