Ireland’s Productivity

21 Mar 2018

Key Point

Productivity is key to raising living standards. Irish-owned firms are suffering from low productivity growth. To deal with this, the OECD recommends increased investment in lifelong learning and training.

What is Productivity?

The OECD in its 2018 economic survey of Ireland¹ noted that increasing productivity is the key to future output and labour earnings growth. Productivity measures how much, on average, workers produce per hour worked. Wages and living standards are directly impacted by productivity growth or decline.

Irish Productivity

The OECD notes that most Irish firms have experienced declining productivity over the last ten years. This is believed to reflect “the poor performance of local firms, with the large productivity gap between foreign-owned and local enterprises having widened”. Table 1 highlights the increasing productivity gap which exists between locally-owned and foreign-owned manufacturing and services firms in Ireland since 2006.

Table 1 – Labour Productivity Index (Irish-owned firms in 2006 = 100)

Table 1 shows that locally-owned manufacturing productivity increased by 25 per cent since 2006, while the equivalent for locally-owned services has yet to return to the level found in 2006. The gap between foreign-owned and locally-owned firms in manufacturing is largely attributable to foreign-owned pharmaceutical, chemicals and ICT enterprises.

What can be done?

As outlined in Budget 2018, labour productivity (GDP per person employed) year-on-year real percentage growth in 2016 was 2.2 per cent. This is expected to slow to 1.2 per cent in 2018 and 1.0 per cent by 2020. There has been a global productivity slowdown in the last decade across advanced economies like Ireland. This has become known as the “productivity puzzle”, as despite rapid technological advancement, labour productivity growth remains sluggish² .

The OECD links declining productivity with a number of issues including high regulatory barriers to entrepreneurship, relatively weak managerial skills, and a low proportion of workers participating in lifelong learning. On this latter issue, it is recommended that training funds should be increased for those who are in employment, and increased financial support to workers undertaking postgraduate courses made available.

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Notes:

¹ OECD (2018), ‘OECD Economic Surveys 2018 – Ireland’

² Department of Finance (2018), ‘Patterns of Firm Level Productivity in Ireland’

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