Productivity in Ireland 2022 - 2023

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. 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. 

Figure 4.1 compares the labour share for the total economy with that for the Foreign and Domestic & Other sector. In 2023, the labour share for the total economy grew to 32%. This constitutes the first year during which the labour share for the Total economy has grown since 2015. In 2023, the labour share continued to be significantly larger in the Domestic sector (53.5%) than the Foreign sector (10.2%), although the gap between these sectors has exhibited a general downward trend since 2016. 

A comparison of the labour share across a few key sectors in the Irish economy is shown in Figure 4.2. Looking at the foreign dominated sectors, the labour share for Foreign Manufacturing stood at 7.2% in 2023, constituting the highest share since 2014. The Information and Communication sector labour share grew to 15.2% in 2023, after reaching a ten-year low of 14.5% in 2021. For comparison, the labour share for this sector stood at 29.6% in 2013. 

For the domestically dominated sectors, a mixed picture of the labour share emerges. Accommodation & Food Service Activities and Construction exhibited the highest labour shares, at 73.2% and 67.3% respectively. For Transportation and Storage, the labour share declined to 58.6% in 2023, the lowest share observed in the sector since 2015. Wholesale & Retail Trade and Finance exhibited the lowest labour share among the domestic sectors shown at 51% and 47% respectively. The Wholesale & Retail sector labour share had been falling from 2019 to 2022, before growing significantly by almost 6 percentage points in 2023.

Figure 4.3 shows the labour share across many sectors in 2023 and how this compares to the total economy result of 32%. The Education and Other Services¹ sectors reported the highest labour shares in 2023 at 88.5% and 90% respectively. These sectors rely heavily on labour e.g., teachers. Sectors such as Human Health and Social Work, Public Administration & Defence, and Agriculture all reported labour shares above 70% in 2023. These are typically labour-intensive industries, with more labour required than capital to carry out daily tasks. The scope for automation through the substitution of technology for labour is more limited in these sectors.

Looking at the capital-intensive sectors, Real Estate had the lowest labour share of 4.6% in 2023, substantially below the Total economy result of 32%. This reflects the significant contribution of imputed rents to this sector's GVA. The aircraft leasing dominated sector of Administrative & Support services came in at 30.1% in 2023, while Information & Communication saw a labour share of 15.2%. These sectors are all capital-intensive sectors, with automation and improvements in technology driving them towards a higher use of capital rather than labour.

¹The Other Services sector includes activities such as those of trade unions, religious and political organisations, as well as the repair of certain household goods. 

Figure 4.4 shows that there were substantial changes in both labour compensation (wages) and capital compensation (profits) in 2023. 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.

Most Domestic sectors recorded strong growth in labour compensation in 2023 e.g. Arts (19.2%), Electricity, Gas Steam & Air Conditioning Supply (19.2%) and Accommodation and Food Service Activities (17.1%). The aggregate growth rates in labour compensation for the Total economy, Domestic sector and Foreign sector were similar in 2023, at 9.4%, 9.4%, and 9.5% respectively.

Financial & Insurance Activities reported the largest growth in capital compensation in 2023 at 52.5%. Other sectors that experienced large growth in profits include: Accommodation & Food Service Activities (21.3%), Transportation & Storage (19.1%) and Real Estate (17.6%). Agriculture, Forestry & Fishing (-41.6%), Foreign sector Manufacturing (-33.4%) and Wholesale & Retail Trade (-13.7%) all experienced falls in profits in 2023. 

Figure 4.5 compares the labour share for Ireland to the EU average for a range of sectors, where the labour share for European countries has been calculated as the share of wages over GVA². Ireland’s labour share (32%) was below the EU average of 52%. Ireland had a labour share above the EU average for several domestic sectors such as Construction, Accommodation & Food Service Activities, and Agriculture, Forestry & Fishing. Many of the sectors considered to be largely capital intensive in Ireland such as Manufacturing, ICT and Administration & Support reported labour shares far below the EU average. 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.