Changes in labour productivity reflect changes in the overall efficiency of the labour force. Labour productivity growth is most easily explained as the difference between Gross Value Added (GVA) growth and the growth in hours worked. Labour productivity growth can also be explained by changes in the level of capital in the economy (capital deepening), as well as changes in Multifactor Productivity (MFP).
Ireland is often described as having a ‘two-speed’ economy, in which the growth in output for foreign-owned multinational enterprises (MNEs) often outpaces that of the domestic economy. Figure 3.1 shows growth in labour productivity for the Domestic and Foreign sides of the economy, as well as total labour productivity growth over the period 2015-2025. This highlights the influence of the Foreign dominated sector in determining Total Economy labour productivity growth rates. In 2025, labour productivity growth for the Foreign sector was 14.2%, while Domestic sector labour productivity declined by 0.8%. This resulted in labour productivity growth for the Total Economy of 6.1%. There are two main reasons for the significant influence of the Foreign sector on total labour productivity growth. Firstly, the Foreign sector has historically exhibited higher levels of labour productivity than the Domestic sector, with levels of €507.3 per hour compared to €65.8 per hour for the Domestic sector in 2025. At the same time, labour productivity growth rates generally tend to be greater for the Foreign sector.
| Timeperiod | Domestic Sector | Foreign Sector | Aggregate NACE Activities A - T |
|---|---|---|---|
| 2015 | 1.8 | 42.5 | 17.3 |
| 2016 | -5.1 | -3.2 | -4.1 |
| 2017 | 2.2 | -2.9 | 3 |
| 2018 | 2.2 | 1.4 | 5.2 |
| 2019 | 1.3 | 1.7 | 1.9 |
| 2020 | 7.5 | 13.1 | 17 |
| 2021 | 2.8 | 9.4 | 8.4 |
| 2022 | -3.6 | 6.2 | 0.6 |
| 2023 | 5.2 | -10.9 | -4.3 |
| 2024 | 2 | 0.5 | 1.8 |
| 2025 | -0.8 | 14.2 | 6.1 |
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Figure 3.2 sheds light on the underlying components of Labour Productivity by displaying growth rates in GVA and hours worked for the Total Economy, from 2015 to 2025. After a period of sustained growth, 2020 saw a sharp decline in labour hours worked by 9.8% while GVA continued to steadily grow (7.1%). This reflects Ireland's experience of the COVID-19 pandemic. The rapid decreases in hours worked in 2020 led to a temporary sharp increase in labour productivity growth that year (17.0%). In 2021 and 2022, hours worked rebounded, exhibiting growth rates of 7.3% and 8.6% respectively, constituting by far the fastest growth rates in labour hours worked of the period 2015-2025. Hours worked grew more slowly in 2023, 2024 and 2025, by 1.7%, 2.1% and 1.6% respectively. While GVA showed substantial growth in 2021 (15.7%), the growth rate lessened but remained positive in 2022 (9.2%). GVA contracted by 2.6% in 2023, before rising in 2024 (3.9%) and 2025 (7.8%). In 2025, labour productivity grew by 6.1%, reflecting that growth in GVA was greater than the growth in hours worked.
| Timeperiod | Gross Value Added Growth | Hours Worked Growth | Labour Productivity Growth |
|---|---|---|---|
| 2015 | 20.3 | 3 | 17.3 |
| 2016 | 1 | 5.1 | -4.1 |
| 2017 | 7.4 | 4.4 | 3 |
| 2018 | 8.9 | 3.7 | 5.2 |
| 2019 | 5.1 | 3.2 | 1.9 |
| 2020 | 7.1 | -9.8 | 17 |
| 2021 | 15.7 | 7.3 | 8.4 |
| 2022 | 9.2 | 8.6 | 0.6 |
| 2023 | -2.6 | 1.7 | -4.3 |
| 2024 | 3.9 | 2.1 | 1.8 |
| 2025 | 7.8 | 1.6 | 6.1 |
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In Figure 3.3, annual growth rates in labour productivity, GVA and hours worked over the period 2015-2025 are shown for the Domestic sectors of the Economy. There were large increases in hours worked following the initial impact of the COVID-19 pandemic in 2020, with increases in 2021 and 2022 of 6.6% and 9.0% respectively for the Domestic sector. Negative labour productivity growth for the Domestic sector was recorded in 2022 as hours worked grew faster than GVA. Hours worked continued to grow more modestly from 2023 to 2025. GVA exhibited positive, but decreasing, growth in the Domestic sector in 2023 (7.2%), 2024 (3.9%), and 2025 (1.2%). In 2025, this resulted in domestic sector labour productivity decreasing by 0.8%, as the growth in hours worked outpaced the growth in GVA.
| Timeperiod | Gross Value Added Growth | Hours Worked Growth | Labour Productivity Growth |
|---|---|---|---|
| 2015 | 4.3 | 2.5 | 1.8 |
| 2016 | 0 | 5.1 | -5.1 |
| 2017 | 5.7 | 3.5 | 2.2 |
| 2018 | 4.9 | 2.7 | 2.2 |
| 2019 | 4.4 | 3.1 | 1.3 |
| 2020 | -4.5 | -11.9 | 7.5 |
| 2021 | 9.4 | 6.6 | 2.8 |
| 2022 | 5.4 | 9 | -3.6 |
| 2023 | 7.2 | 2 | 5.2 |
| 2024 | 3.9 | 1.9 | 2 |
| 2025 | 1.2 | 2 | -0.8 |
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Figure 3.4 shows the contribution of each sector to the 0.8% decline in Domestic dominated labour productivity in 2025. Financial & Insurance activities made the largest negative contribution (-0.9%). The largest positive contribution was from Agriculture, Forestry & Fishing (0.5%).
The contributions are further decomposed into a productivity effect and a composition effect. The composition effect can be described as the productivity impact when a sector becomes relatively smaller or larger compared to other sectors and the overall economy. For example, if a less productive sector becomes relatively smaller from one year to the next, this has the effect of increasing labour productivity for the Domestic sector. The productivity effect on the other hand can be explained by changes in labour productivity for the individual sectors.
The -0.8% growth in labour productivity for the Domestic sector in 2025 was driven by the productivity effect (-0.9%) rather than the composition effect (0.0%). The negative productivity effect was driven by sectors such as Professional, Scientific & Technical Activities (-0.8%), Domestic Manufacturing (-0.7%) and Real Estate (-0.6%). Some sectors contributed positively to the composition effect such as Real Estate (0.8%) and Agriculture, Forestry & Fishing (0.4%) while others contributed negatively such as Wholesale & Retail Trade (-1.9%).
| Description | Productivity Effect | Composition Effect | Contribution |
|---|---|---|---|
| Financial and insurance activities (K) | -0.4 | -0.5 | -0.9 |
| Domestic Sector | -0.9 | 0 | -0.8 |
| Wholesale and Retail Trade (G) | 1.4 | -1.9 | -0.6 |
| Domestic Manufacturing (NACE 10-17,19,22-25,28-30,33) | -0.7 | 0.2 | -0.5 |
| Professional, Scientific and Technical Activities (M) | -0.8 | 0.3 | -0.5 |
| Accommodation & Food Service Activities (I) | 0.1 | -0.1 | -0.1 |
| Mining and Quarrying (B) | 0 | 0 | 0 |
| Water Supply, Sewerage & Waste Management (E) | 0.1 | 0 | 0 |
| Information and communication (J) | -0.1 | 0.1 | 0 |
| Public Administration and Defence (O) | -0.1 | 0 | 0 |
| Arts, Entertainment and Recreation (R) | -0.1 | 0 | 0 |
| Other service activities (S) | 0.1 | -0.1 | 0 |
| Electricity, Gas, Steam and air conditioning supply (D) | 0.1 | 0 | 0.1 |
| Administrative and Support Service Activities (N) | -0.2 | 0.3 | 0.1 |
| Education (P) | -0.2 | 0.3 | 0.1 |
| Construction (F) | 0.1 | 0.1 | 0.2 |
| Real estate activities (L) | -0.6 | 0.8 | 0.2 |
| Transportation and Storage (H) | 0.2 | 0.1 | 0.3 |
| Human Health and Social Work Activities (Q) | 0.1 | 0.2 | 0.3 |
| Agriculture, Forestry and Fishing (A) | 0.1 | 0.4 | 0.5 |
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Labour productivity growth can also be explained by changes in capital per hour worked (capital deepening) and multifactor productivity (MFP) growth. Intangibles are the most significant type of capital used in the Irish economy, which includes patents and intellectual property products (IPP).
Capital deepening is measured as the growth in capital services per hour worked, where capital services are a measure of the flow of productive services from capital assets such as Factories, Machinery and Equipment and Intangible Assets. MFP is a residual measure and is calculated by subtracting labour and capital from GVA growth. As a result, MFP attempts to capture all other effects such as changes in organisational behaviour or shifts to remote working, which are not explained by the changes in labour or capital.
Table 3.1 below explains the relationship between the different inputs in the Domestic sector. For example, Labour Productivity Growth (C) is the sum of total Capital Deepening (Column E) and MFP Growth (Column D).
Figure 3.5 presents growth in Labour Productivity, decomposed into capital deepening and multifactor productivity growth for the Total Economy. MFP growth as well as capital deepening have played a role in explaining labour productivity growth fluctuations over the period 2015-2025. In 2025, the 6.1% growth in Total Economy labour productivity was almost wholly driven by growth in multifactor productivity (7.2%), offset slightly by negative capital deepening (-1.1%).
Figure 3.6 presents growth in Labour Productivity, decomposed into capital deepening and multifactor productivity growth for the Domestic sector. In 2025, the 0.8% decline in Domestic labour productivity was driven by multifactor productivity declining by 1.1%, offset slightly by capital deepening increasing by 0.3%.
A sectoral analysis of Labour Productivity growth for 2025 is shown in Figure 3.7 for some key Domestic sectors. Labour productivity in Mining & Quarrying exhibited the largest annual growth rate at 20.3%, with this sector seeing volatile results over time due to the nature of its activities. Information & Communication also showed strong growth in labour productivity of 18.5%, driven primarily by MFP growth of 15.3%. Labour productivity in Domestic Manufacturing showed the greatest contraction with a growth rate of -7.6%, with both negative capital deepening (-3.0%) and a decline in MFP (-4.6%) playing a role here.
| Description | Capital Deepening Contribution to Labour Productivity Growth | Multifactor Productivity Growth | Labour Productivity Growth |
|---|---|---|---|
| Domestic Manufacturing (NACE 10-17,19,22-25,28-30,33) | -3 | -4.6 | -7.6 |
| Financial and insurance activities (K) | -3.3 | -3.9 | -7.1 |
| Professional, Scientific and Technical Activities (M) | 1.7 | -7.4 | -5.7 |
| Real estate activities (L) | -6.8 | 1.7 | -5 |
| Education (P) | -0.3 | -3.4 | -3.8 |
| Public Administration and Defence (O) | 0.1 | -1.2 | -1.1 |
| Domestic Sector | 0.3 | -1.1 | -0.8 |
| Arts, Entertainment and Recreation (R) | 2.2 | -1.6 | 0.6 |
| Human Health and Social Work Activities (Q) | 0.5 | 0.3 | 0.8 |
| Wholesale and Retail Trade (G) | 2.3 | -1.3 | 1 |
| Construction (F) | -0.1 | 1.9 | 1.8 |
| Accommodation & Food Service Activities (I) | 1.5 | 0.5 | 2.1 |
| Agriculture, Forestry and Fishing (A) | 0 | 2.8 | 2.8 |
| Other service activities (S) | 0.8 | 3.5 | 4.3 |
| Water Supply, Sewerage & Waste Management (E) | 1.1 | 4.1 | 5.2 |
| Transportation and Storage (H) | -0.1 | 6.1 | 6 |
| Electricity, Gas, Steam and air conditioning supply (D) | 5.9 | 1.2 | 7.1 |
| Administrative and Support Service Activities (N) | -0.8 | 9.7 | 8.8 |
| Information and communication (J) | 3.2 | 15.3 | 18.5 |
| Mining and Quarrying (B) | 14.7 | 5.6 | 20.3 |
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Figure 3.8 shows labour productivity growth for Ireland's domestic Manufacturing sector over the period 2015-2025, decomposed into capital deepening and multifactor productivity growth. Labour productivity for the domestic Manufacturing sector contracted by 7.6% in 2025. Capital deepening contributed -3.0% towards this decline, while multifactor productivity contributed -4.6%. The decline in domestic Manufacturing labour productivity in 2025 constitutes the first year-on-year reduction since 2016 in this sector.
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