Productivity in the domestic market trails behind European peers, report suggests

Hospitality, transport and manufacturing were among the sectors examined by Neri for the report, all of which underperformed compared to productivity in other similar economies.

Productivity in the domestic economy may be trailing behind European peers due to poor infrastructure and low levels of investment, suggested research by the Nevin Economic Research Institute (Neri).

In its report titled ‘Productivity in Ireland’s Domestically-Owned Market Economy’, published with trade union Siptu, Neri indicated while multinationals continued to buoy the economy, there were signs domestic sectors were underperforming, which could be leading to lower wages.

“People tend to think that lower productivity means that workers put in less effort or are less efficient. However, the problem facing Ireland’s domestic sector is not its workforce, but rather a swathe of unproductive firms,” said Neri researcher Chris Smart and Siptu researcher Michael Taft in commentary on the report.

The domestic sectors included in the research exclude areas with a strong public sector presence such as health and education. 

Hospitality, transport and manufacturing were among the sectors examined by Neri for the report, all of which underperformed compared to productivity in other similar economies.

The disparity was not evenly distributed across domestic economic sectors. For instance, the worst performing sectors by comparison were wholesale and retail, followed by manufacturing, especially food manufacturing, transport and hospitality. 

Meanwhile, productivity in construction was average compared with other similar economies.

On the opposite end of the spectrum, domestic productivity in the professional and scientific sectors in Ireland greatly outstripped other countries, boosted by a strong performance in management consultancy.

Neri used the value-added per hour worked as the measure of apparent labour productivity for its research and concluded Ireland would need to increase the amount of hourly value-added by 17% to reach the average of its economic peers.

“Put another way, if we had the same productivity as these other countries, Irish wages and profits could be, on average, 17% higher,” Mr Smart and Mr Taft said in their commentary.

The research carried out by Neri compared Ireland’s productivity against other small open economies including Austria, Belgium, Denmark, Finland, Ireland, Luxembourg, Netherlands, Norway and Sweden.

Neri used these economies due to the number of shared characteristics with Ireland, including high-income, small population and domestic markets, and a high reliance on exports.

The institute also suggested managerial deficits and a crowding-out effect of foreign-owned companies and reduced market competition due to entry barriers are also likely to have impacted domestic productivity.