Productivity in Ireland Quarter 2 2025

Labour Productivity

Labour productivity is a key indicator for the Irish economy as 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. Therefore, changes in labour productivity for a sector can be explained by changes in GVA and changes in hours worked. 

Labour productivity for the Total Economy (€125.40 per hour¹) declined by 1.1% in the second quarter of 2025. Labour productivity was up in the Foreign sector (€530.90 per hour, up 2.3%). In the Domestic sector labour productivity declined (€63.40 per hour, down 3%) compared with Q1 2025. Figure 1.1 shows the evolution of productivity in the Total Economy as well as in the Domestic and Foreign sectors since Q1 2022.

¹ All results presented in this release are seasonally adjusted unless otherwise stated.

We can look at labour productivity individually in each of the subsector activities of the economy. Figure 1.2 shows the changes in labour productivity in the subsectors being analysed in this release. It shows how changes in GVA and hours worked make up these productivity changes. For example, the largest growth in labour productivity in Q2 2025 was in Real Estate Activities (+28.9%). This was made up of growth in GVA of 2.8% and a drop in hours worked of 26%. In contrast, a fall in productivity in Transportation & Storage of 30.4% was made up of a decrease in GVA of 17.1% and an increase in hours worked of 13.3%. Total Economy productivity observed a rise in GVA of 0.9% and an increase in hours worked of 2%.

The relationship between total hours worked and output per hour is inverse: as hours worked rise, output per hour falls, and vice-versa. To reflect this, the sign of total hours worked is reversed in Figure 1.2.

Domestic Labour Productivity

Domestic labour productivity decreased by 3% in Q2 2025, compared with the previous quarter. This was caused by an increase in hours worked (2.3%) and a decrease in GVA (-0.6%) in the quarter. Figure 1.3 shows labour productivity broken down into both GVA and hours worked in the period since Q1 2022. Looking at the decline in Domestic GVA in Q2 2025, Domestic Manufacturing (1%) and Construction (0.5%) made the largest positive contributions. Professional, Scientific & Technical Activities (-1.4%) and Transportation & Storage (-0.8%) made the most significant negative contributions.

The main contributor to the increase in Domestic Hours worked include Public Administration, Education & Health (0.8%), while Accommodation & Food Services (-0.4%) made the most significant negative contribution.

Productivity and Composition Effects in the Domestic Sector

The changes in Domestic Labour productivity can be broken down into the contributions of each of its subsectors², as shown in Figure 1.4. The contribution of each subsector is determined by two factors: labour productivity growth for the individual subsector (Productivity Effect) and changes in the relative size of the subsector compared with the total Domestic sector (Composition Effect). Positive labour productivity growth for a subsector will always lead to a positive Productivity Effect, however the Composition Effect³ depends on how productive the subsector is compared with the overall Domestic sector. For example, if a low productivity subsector grows faster than the rest of the Domestic subsectors, it will account for a larger share and therefore reduce average labour productivity for the total Domestic sector.

The 3% quarter-on-quarter fall in Domestic labour productivity can be explained by a Productivity Effect of 1.1% and a Composition Effect of -4.1%. This means that improvements in subsector productivity (Productivity Effect) were offset by changes in the composition of the sector (Composition Effect), leading to the decrease in Domestic labour productivity. Domestic Manufacturing (-1.4%) and Professional, Scientific & Technical Activities (-0.7%) made the most significant negative contributions. Agriculture, Forestry & Fishing Activities (0.5%) and Construction (0.3) made the most positive contributions to Domestic labour productivity growth.

² For confidentiality purposes, the contributions of Information & Communications – Domestic and Administrative & Support Services – Domestic have been combined in Figure 1.4.

³ Also called the Reallocation Effect.

Capital Deepening and Multifactor Productivity

While changes in the level of labour in the economy are a crucial factor in explaining changes in efficiency in the economy, it is important to remember that overall productivity is not only dependent on labour. Capital, such as machinery, equipment, factories, and vehicles (tangible capital) and intellectual property (intangible capital) is the other key element of production in any economy.

Changes in the level of capital available to labour (capital deepening) has a considerable influence on output, as more capital investment increases the productive capacity of workers. Capital deepening is measured as the change in capital services per hour worked, where capital services are units of capital in the same way that hours worked are units of labour.

Aside from the level of labour and capital, overall productivity is also influenced by factors such as education, skills, organisational practices, and changes in technology among others, all of which have a significant influence on the quality of labour and capital. Multifactor productivity (MFP) is the measure of overall productivity in the economy, which attempts to capture all these features.

Figure 1.5 shows the contributions of labour, capital, and MFP growth to GVA quarter-on-quarter growth for the Domestic sector. GVA growth is explained by the contributions of labour and capital, where the contributions capture changes in both of these factors. MFP growth is calculated as the difference between GVA growth and the sum of the labour and capital contributions (i.e. a residual measure).

Domestic GVA declined by -0.6% in the second quarter of 2025, explained by a MFP decrease of -2.4%, increased labour contribution of 1.2%, and by a capital contribution increase of 0.6%.

Changes in labour productivity can also be explained by capital deepening and MFP growth, as shown in Figure 1.6. The decrease in Domestic labour productivity of 3% in Q2 2025 compared with the previous quarter was due to negative MFP growth (-2.4%) and decreased capital deepening (-0.5%).

Figure 1.7 illustrates the evolution of MFP for the Total Economy and the Domestic and Foreign sectors since the fourth quarter of 2021. In Q2 2025, MFP recorded a quarter-on-quarter decrease for the Total Economy (-0.2%) and for the Domestic sector (-2.4%). For the same period MFP increased for the Foreign sector (2.1%). Due to globalisation events, the Foreign sector has seen MFP increase by 42.9% since Q4 2021, resulting in Total Economy MFP growth of 12.3% over the displayed period. The multifactor productivity index for the Foreign sector has now reached the value of 142.9, with 6 consecutive quarter-on-quarter increases. Domestic sector MFP recorded its largest quarter-on-quarter decrease since Q1 2022.

Figure 1.8 compares labour productivity for Ireland’s Total Economy and Domestic sector to the EU average and several countries in the EU⁴. Ireland had the highest labour productivity (€125.40 per hour) in the EU in Q2 2025, above Luxembourg (€100.10 per hour) and over two-and-a-half times the EU average (€46.50 per hour). Ireland’s Domestic labour productivity (€63.40 per hour) was also considerably above the EU average, and higher than all countries shown other than Luxembourg. Across the EU, average labour productivity showed an increase (0.2%).

⁴ For which data was available at the time of release.

Unit Labour Costs

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 1.9 shows seasonally unadjusted year-on-year ULC growth for the total economy from Q1 2022, decomposed into year-on-year growth in hourly compensation and labour productivity. In Q2 2025, ULC declined by -9.4%, as labour productivity increased faster than hourly compensation. Labour productivity grew by 12.9% in Q2 2025 with hourly compensation growing by 3.5%.

Figure 1.10 displays seasonally unadjusted year-on-year ULC growth for the Domestic economy from Q1 2022, decomposed into year-on-year growth in hourly compensation and labour productivity. In Q2 2025, ULC increased by 5.1%, as hourly compensation increased faster than labour productivity. Labour productivity declined by -2.2% in Q2 2025 with hourly compensation growing by 2.9%.

To highlight the changes in the relative cost of labour across the economy, Figure 1.11 shows seasonally unadjusted year-on-year growth in hourly compensation, labour productivity and ULC by sector in Q2 2025.

Professional, Scientific & Technical Activities (18.3%) and Energy & Water (14.8%) saw the largest growth in ULC, while Foreign Manufacturing (-34.2%) and Information & Communication (-15.2%) had the largest decreases.

In general, ULC increased for most domestic sectors, with wage growth exceeding labour productivity growth. For the Foreign sector significant increases in labour productivity outweighed increases in wage growth.