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Productivity

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Productivity analysis measures how efficiently key inputs of labour and capital are combined in the production process. This chapter provides an analysis of productivity in the ICT sector in 2019. The sector stands out as one of the most productive in the Irish economy and is characterised by very high labour productivity, and an extremely low labour share. However, two different stories emerge when we look at firms by size class. For the large MNEs and the overall ICT value chain, labour productivity (and labour productivity growth) is largely explained by the extremely high concentration of intangible assets when compared to other sectors in the economy. For smaller firms in the sector, which are typically domestic, labour productivity is much closer to the total economy average.

DescriptionNon-ICTICT
Real Estate Activities (L)1545105.170405210
Software and Other Media (58-60)01087910.16170519
Manufacturing (C)502733.5801958310
IT and Other Information Services (62-63)0414949.413109377
Electricity, Gas and Steam (D)304822.1482640660
Telecommunications Services (61)0303512.089083903
Water Supply, Sewerage and Waste Management (E)216487.9385962120
Administrative and Support Service Activities (N)194304.093220380
Financial and Insurance Activities (K)172791.0938880510
Professional, Scientific and Technical Activities (M)116175.9576398630
Mining and Quarrying (B)74658.11733485970
Wholesale and Retail (G)74625.07034646210
Public Administration and Defence (O)68665.26311312730
Transportation and Storage (H)68106.58547799910
Arts, Entertainment and Recreation (R)64839.10673086140
Human Health and Social Work (Q)59273.36325242290
Education (P)55639.26254400840
Construction (F)53463.82163659880
Other Service Activities (S)39611.66123414850
Agriculture, Forestry and Fishing (A)31295.45976554080
Accommodation and Food Service Activities (I)27830.23792323490
Activities of Households as Employers (T)20543.92455387910

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Labour productivity measures the output per worker of a particular sector, where output is measured as Gross Value Added (GVA) in constant prices (that is, adjusted for inflation). Higher labour productivity for a sector implies that its labour force is being used more efficiently than sectors with lower labour productivity, as each worker in that sector is producing relatively more output (GVA). Other than Real Estate Activities*, the ICT subsector Software and Other Media (58-60) was by far the most productive sector in the Irish economy in 2019, with labour productivity of €1.1m per employee. The other two ICT subsectors were also among the most productive in the overall economy: IT and Other Information Services (62-63) was the fourth most productive and Telecommunications Services (61) followed closely after.

*Gross Value Added for Real Estate Activities is largely made up of imputed rents, so its labour productivity is not comparable to other sectors in the economy, but is included for completeness.

The chapter on Labour showed that the ICT sector was one of the most highly educated sectors in the economy, so it is unsurprising that the sector is generally more productive than the rest of the economy. However, much of the GVA in the ICT sector can be attributed to large imports of intellectual property (IP) products more than its high-quality workforce, so the labour productivity figures need to be considered in this context.

DescriptionNon-ICTICT
Other Service Activities (S)92.91893992191650
Human Health and Social Work (Q)86.42475005453180
Education (P)85.91047223178750
Accommodation and Food Service Activities (I)81.60841899409420
Public Administration and Defence (O)80.61432753728950
Agriculture, Forestry and Fishing (A)77.69976948768730
Construction (F)64.72710588405150
Transportation and Storage (H)64.72515270615410
Professional, Scientific and Technical Activities (M)58.52333117077090
Mining and Quarrying (B)54.22110936154950
Wholesale and Retail (G)53.74448749822940
Arts, Entertainment and Recreation (R)53.08663442615340
Financial and Insurance Activities (K)51.1766363333190
Activities of Households as Employers (T)39.10261751359320
Water Supply, Sewerage and Waste Management (E)37.40844777162760
Electricity, Gas and Steam (D)31.69625787751710
Telecommunications Services (61)030.2686887256832
IT and Other Information Services (62-63)027.5154268497794
Administrative and Support Service Activities (N)24.80224274724210
Manufacturing (C)11.46660288287120
Software and Other Media (58-60)07.54265967771498
Real Estate Activities (L)5.407861768237150

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In productivity analysis, output (measured in GVA) is attributed to either labour or capital. The labour share of a sector measures the proportion of output that is attributable to labour, either paid as wages (Compensation of Employees) or self-employed income (Gross Mixed Income). The ICT sector in the Irish economy has a much lower labour share compared to other sectors on average (for example, the EU average was 53% in 2019), meaning  that most of the output in the sector is attributable to capital, paid as profits (Gross Operating Surplus). The most productive ICT subsector, Software and Other Media had an extremely low labour share of just 8% in 2019. IT and Other Information Services had a labour share of 28%, while Telecommunications) had a similarly low labour share of 30%. Less than a quarter of the GVA in the ICT sector was explained by wages, which indicates its use of capital assets, particularly IP, was the major factor driving productivity in the sector.

X-axis labelGVA per Employee
Large704193.257201397
Medium71472.261741996
Small53602.4062142832

Overall productivity results in the ICT sector are dominated by a small number of very large multinational enterprises (MNEs). Figure 4.3 shows GVA per Employee across the three size classes of small, medium and large for the ICT sector. Overall GVA per employee is €567,089 for all companies in the sector. It is interesting to note that GNI* per employee is €261,021 for all companies in 2019.

Large companies, which are classified as more than 250 employees had GVA per Employee of €704,193. As this grouping is dominated by MNEs with large IP capital assets, this result is more than ten times larger than that of medium and small enterprises. For medium sized companies (between 50 and 250 employees), a result of €71,472 per employee was reported, while for small companies (less than 50 employees) a result of €53,602 was recorded. The effect of globalisation is clearly seen in the result for the large companies compared to the lower size classes. There are 54 large companies in the sector, and they accounted for 63% of employment. When the effect of globalisation is removed, the medium and small companies have productivity that is closer to the national average.

DescriptionNon-ICTICT
Real Estate Activities (L)1463993.272560450
Software and Other Media (58-60)01011331.94705452
IT and Other Information Services (62-63)0308554.144681633
Telecommunications Services (61)0217007.765974964
Electricity, Gas and Steam (D)203852.1758759470
Water Supply, Sewerage and Waste Management (E)143641.1345266850
Financial and Insurance Activities (K)81071.89390603320
Professional, Scientific and Technical Activities (M)46205.5436263380
Wholesale and Retail (G)34905.70868967710
Arts, Entertainment and Recreation (R)30955.66470016810
Mining and Quarrying (B)30475.48636449390
Transportation and Storage (H)27367.54751019430
Construction (F)18858.63091168770
Public Administration and Defence (O)13350.47101108050
Human Health and Social Work (Q)8122.38972016810
Education (P)7750.030462804140
Agriculture, Forestry and Fishing (A)7454.313141203440
Accommodation and Food Service Activities (I)4889.549603861630
Other Service Activities (S)2437.800178104690

Get the data: PxStat VCA19

Capital services are a measure of the flow of productive services from capital such as buildings, factories, machinery and equipment and importantly for this sector, intangible assets. Capital intensity measures capital services per employee. Higher capital intensity implies that a sector has a higher level of capital relative to labour.

Figure 4.4 shows capital intensity across the Irish economy in 2019. For confidentiality purposes, Manufacturing (C) and Administrative and Support Services (N) cannot be shown. The ICT subsectors were among the most capital-intensive sectors in the economy in 2019, with Software and Other Media having the second largest capital intensity of €1m per worker far surpassing all sectors in the economy other than Real Estate. Similarly, IT and Other Information Services and Telecommunications Services used more capital services per employee than all the remaining sectors in the economy. By far the most significant asset class in the ICT sector in 2019 was intangible assets (85% of capital stocks). This means that not only was the ICT sector one of the most capital-intensive in the economy in 2019, but also that most of its capital services were attributable to IP.

X-axis labelCapital Stock per Employee
Large855591.064901803
Medium60864.5917971166
Small22424.3763647111

Returning to productivity measures by size class, capital assets per employee (a proxy for capital intensity) for the ICT sector in 2019 is shown in Figure 4.5. Given the scale of the balance sheets of the small number of multinationals in the sector, capital assets per employee for large companies dominates that of the medium and small companies. For large companies, a result of €855,591 per employee, almost thirteen times that of medium-sized companies (€60,864) was reported. Capital assets per employee of €22,424 were recorded for the smaller companies. The considerably lower capital assets per employee for the medium and smaller companies demonstrates that those companies are more reliant on their labour force or human capital for their value added.

Figure 4.6: Capital Services, Workers and Labour Productivity by A21 Sector and ICT Subsectors - 2019

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The above graph compares the three indicators presented in this chapter, labour productivity, capital services and the number of workers in each sector. It shows the significant difference between the sources of productivity in the ICT sector and the rest of the economy in 2019. For confidentiality, the Manufacturing and Administrative and Support Services sectors are not shown. The vertical axis shows the number of workers, and the horizontal axis shows capital services (in billions). The size of the bubbles indicates labour productivity. Sectors with a higher number of workers are to the top of the graph and sectors that use more capital services are to the right.

While all of the ICT subsectors were highly productive relative to the overall economy in 2019, none of the three subsectors had a particularly high number of workers. For example, IT and Other Information Services had fewer workers than many of the A21 sectors in the economy. Importantly, the ICT subsectors of Software and Other Media and IT and Other Information Services (lower-right of graph) were significantly different than most sectors as they were extremely capital-intensive, with far higher capital assets use than almost all other sectors.

The above graph shows a few large bubbles (high labour productivity) and many smaller ones. The larger bubbles are all to the right of the graph. This indicates that the more productive sectors in the economy, including the ICT subsectors, had a much higher level of capital services use than the less productive sectors. The more productive sectors also accounted for a relatively smaller proportion of total employment than the less productive sectors.

Overall, the ICT sector was extremely productive when compared to almost every other sector in the economy in 2019. While its highly educated workforce was certainly a large factor in this, it was not the most important component at the sectoral level. It was the sector's significant use of capital assets, predominantly intangible assets such as patents and software, which made it so highly productive. However, when we look at productivity in the sector by size class, a different picture emerges of small and medium firms which are more reliant on labour than capital. Although these firms only generate a fraction of the value added of the large MNEs, they account for almost half of employment in the sector.