Productivity in Ireland 2022 - 2023

Nominal unit labour costs (ULC) show how wages and other labour costs are growing in relation to labour productivity. They are often presented as an indicator of competitiveness and are defined as the ratio of hourly compensation relative to labour productivity, measured as Gross Value Added per hour worked. Increases in nominal unit labour costs for a particular sector mean that the cost of labour is increasing relative to labour productivity. This indicates that a sector has become relatively less competitive when compared to its international peers. On the other hand, decreases in nominal unit labour costs indicate increased competitiveness for a sector.

Figure 5.1 shows ULC growth for the Total economy between 2013-2023, decomposed into growth in hourly compensation and labour productivity. In 2023, ULC rose by 15.5%, as labour productivity declined (-7.5%) while hourly compensation grew (8%). This constitutes the largest annual growth rate in ULC over the period shown. 

To highlight the changes in the relative cost of labour across the economy, Figure 5.2 shows growth in hourly compensation, labour productivity and ULC by sector in 2023. There were large movements in ULC for many sectors in 2023, with both changes in hourly compensation and labour productivity playing a role.

Electricity, Gas, Steam & Air Conditioning Supply saw the largest decline in ULC in 2023 at -40.9% due to labour productivity growing at a faster rate than hourly compensation. This sector had the strongest growth in both labour productivity (61.5%) and hourly compensation (20.6%) in 2023. 

Foreign Manufacturing saw the largest growth in ULC in 2023 at 41.3%. Among the domestically dominated sectors, the largest growth in ULC was observed in Arts, Entertainment & Recreation at 16.2%, followed by Wholesale & Retail Trade at 15.2%. 

Figure 5.3 shows ULC growth for the Domestic economy between 2013-2023, decomposed into growth in hourly compensation and labour productivity. In 2023, ULC grew by 3.9%, as labour productivity increased at a slower rate than hourly compensation. Labour productivity grew by 3.8% in 2023 with hourly compensation growing by 7.7%. ULC growth has been consistently positive year-on-year since 2019 which may indicate decreasing competitiveness over this period. 

Looking at the Foreign sector in Figure 5.4, labour productivity grew faster than wages from 2020 to 2022, while the reverse was observed for the Domestic sector. In 2023, Foreign sector labour productivity dropped by 15.9%, while hourly compensation grew by 9.9%, leading to a significant growth in ULC of 25.8%. 

Changes in ULC can be used as a means of comparing competitiveness within a sector across countries. Figure 5.5 compares ULC growth for Ireland to the EU average in 2023 to facilitate such a comparison. For the total economy, Ireland's growth in ULC (15.5%) was above the EU average (6%) representing a loss of competitiveness. For a large number of sectors, Ireland reported changes in ULC far above the EU average. For example, in 2023, ULC for Irish Manufacturing grew by 35.1% while the EU average growth rate stood at 7.7%. This indicates that Irish manufacturing became less competitive relative to Manufacturing in other EU countries. This was driven by Ireland's Foreign Manufacturing sector which saw ULC grow by 41.3%. A contrasting result is reported for Ireland's Domestic Manufacturing sector, which saw ULC decrease by 6.5%, reflecting increased competitiveness.