Productivity in Ireland 2022 - 2023

Labour productivity is a key indicator for the Irish economy and it is the main measure of the efficiency of the labour force. Labour productivity is measured as output per hour worked, where output is measured as Gross Value Added (GVA) in constant prices. If a particular sector has higher labour productivity than another sector, it implies that the sector may be using its labour force more efficiently to produce output, for example by utilising capital. 

Labour productivity had seen consistent improvements for a number of years until 2021 despite the impact of COVID-19, however it will be shown in this chapter that labour productivity for the Total Economy declined in 2022 and 2023, driven by the foreign-dominated sectors.

In Ireland, there is a significant disparity between the hyper-productive Foreign sector and the Domestic sector¹ both in terms of their respective levels of labour productivity and the trends they exhibit over time. This is due to the capital-intensive nature of activities by foreign-owned multinational enterprises (MNEs), which also impacts labour productivity at the total economy level. When comparing sectors in the Irish economy to their European equivalents, Ireland stands out as highly productive for foreign-dominated sectors but is only slightly above average for many of its domestic sectors. The productivity indicators for the Domestic sector are given prominence in this report on account of their importance for Irish policy makers. 

Figure 2.1 below illustrates labour productivity for the Irish economy over the period 2013-2023 and highlights the significant disparity between the Foreign and Domestic sides of the economy. Labour productivity for the Total Economy was €105.8 per hour in 2023, an annual decrease of 7.5%. Labour productivity for the Domestic sector stood at €61.1 per hour, a rise of 3.8% relative to 2022. In stark contrast to this, labour productivity for the Foreign sector was €388.9 per hour, which constitutes an annual decline of 15.9%.

¹ The Foreign sector refers to all economic sectors where turnover from foreign multinational enterprises exceeds 85% of total sector turnover. These sectors are related to the Manufacturing and Information & Communications sectors. In this release, the Renting and Leasing sector is also treated as foreign given the large amount of capital aircraft assets held in this sector. The Administrative and Support Service Activities is therefore split into a domestic and foreign part. For more information, please see the Background Notes.

Figure 2.3 compares labour productivity³ in the Irish economy (€105.8 per hour) to that of several similarly-sized EU economies, as well as average EU labour productivity in 2023. Labour productivity for the Irish Domestic sector (€61.1 per hour) was above the EU average (€41.9 per hour). 

³ The labour productivity data used for comparison was calculated using data from Eurostat tables Gross Value Added and Hours Worked. This data does not account for differences in the measurement of hours worked across countries, and so is provided for illustrative purposes rather than a precise comparison of labour productivity across the EU. A more comparable dataset is found in this Eurostat table, although this only provides data in the form of indices which only facilitate growth comparisons rather than the level comparisons shown.

Figure 2.4 compares Irish labour productivity for 2023 to the EU Average for a range of sectors. Irish Labour Productivity for the Total economy was higher than the EU average across all sectors, with the exception of Mining and Quarrying which tends to see volatile results due to the nature of its activities. For Information and Communication, Ireland's labour productivity (€293.5 per hour) was over four times the EU average (€62.9 hour). For the Manufacturing sector, both Foreign labour productivity (€439.9 per hour) and Domestic labour productivity (€89.0 per hour) were above the EU average (€47.3 per hour). 

Figure 2.5 compares Irish Labour Productivity Growth in 2023 to the EU average for a range of sectors. While labour productivity for Ireland’s total economy fell by 7.5% in 2023, there were varying results across sectors.

Ireland’s Electricity, Gas Steam & Air Conditioning Supply sector saw the largest growth in labour productivity in 2023 at 61.5%, far outpacing the EU average growth rate for that sector.

Labour Productivity for Ireland's Manufacturing sector overall declined by 24.6%, while it decreased by only 1.2% on average across the European Union for this sector. This overall decline was driven by the Foreign-dominated manufacturing sector, which saw labour productivity shrink by 29% in 2023. In contrast, labour productivity among Domestic-dominated manufacturing grew by 14.7%.

Figure 2.6 presents average annual compound growth rates in Labour Productivity over the period 2013 to 2023 in Ireland for a range of sectors. These are compared to the EU average equivalent rate for each sector. Labour productivity for Ireland’s total economy had an average annual growth rate of 4.8% per year over the period 2013-2023, a rate which was six times the EU average of 0.8% per annum. Labour productivity for the domestically dominated sector exhibited an average annual growth rate of 1.5% for this period, while the foreign dominated sector grew at a rate of 6.6% per year. 

The largest average annual growth rates in Labour Productivity within Ireland were seen in the Activities of Households as Employers sector (20.4%), Information and Communication sector (10% per year), Agriculture, Forestry & Fishing (9.9% per year), and Manufacturing (9.7% per year). As well as being the fastest growing sectors in Ireland in terms of labour productivity, they also far exceeded EU average growth rates.

Almost every Irish sector which saw positive average growth in labour productivity grew considerably faster than the EU on average. Conversely, many sectors which experienced contractions in labour productivity declined at a much faster rate than the EU on average, including sectors such as Transportation & Storage (-5.7% per year), Electricity, Gas Steam & Air Conditioning Supply (-5.7% per year) and Construction (-4.3% per year).