Labour productivity in the Irish economy declined by 7.5 per cent in 2023 – the largest drop in the European Union (EU) – as people worked more hours but generated less, according to a new report from the Central Statistics Office (CSO).
The report on productivity in Ireland measures the efficiency with which the economy transformed inputs into outputs.
The productivity of labour is measured by the value added per hour worked. That is to say, productivity goes up if more is produced with the same number of hours of labour, or the same amount is produced in less working time.
While labour productivity across the EU fell by just 0.2 per cent, the 7.5 per cent decline in Ireland was driven by a 5.8 per cent fall in gross value added, and a 1.7 per cent rise in hours worked.
However, when looking at Ireland’s multinational and domestic sectors separately, different pictures emerge. The drop here was rooted in the performance of multinationals, while the domestic economy saw productivity increase.
Domestic labour productivity went up 3.8 per cent, which was the fastest growth rate in the EU. Gross value added rose 5.8 per cent, outstripping the 2 per cent increase in hours worked. Growth was driven by the property, financial and insurance sectors.
In contrast, labour productivity for the multinational sector fell by 15.9 per cent, which was the largest decrease in the EU. That was driven primarily by a decrease of 16.1 per cent in gross value added, as well as a 0.2 per cent drop in hours worked.
This fall in the multinational sector was driven by manufacturing, which saw labour productivity decline by 29 per cent.
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Despite the drop, labour productivity overall stood at €105.8 per hour in Ireland, which was the highest in the EU, driven by the performance of multinationals where productivity was €388.9 per hour.
The high performing sectors were manufacturing (€282.9 per hour) and information and communications (€293.5 per hour), both of which saw labour productivity levels far higher than their respective EU averages.
Productivity in sectors dominated by domestically-owned companies was €61.1 per hour, which was considerably closer to the EU average of €41.9 per hour.
The data also shows domestic unit labour costs rose by 3.9 per cent, indicating the cost of labour increased relative to labour productivity. The picture was more stark in the multinational sector where unit labour costs grew by 25.8 per cent.
On jobs, the data shows more than half (53.5 per cent) of the domestic sector gross value added was attributed to labour, which was just above the EU average.
However, the total economy had the lowest labour share in the EU (32 per cent), with this result driven strongly by the capital-intensive multinational sector, which reported a labour share of just 10.2 per cent.
