Productivity: the leprechauns are back

Cantillon: How did Irish workers get to be the most productive on the planet?

An hour spent working for Apple, Google or Facebook creates more value in pure financial terms than an hour spent working for a firm in a more traditional industry. Photograph:  Peter Muhly/AFP/Getty Images

An hour spent working for Apple, Google or Facebook creates more value in pure financial terms than an hour spent working for a firm in a more traditional industry. Photograph: Peter Muhly/AFP/Getty Images

 

Without a significant change in work patterns or a major increase in hours worked, Irish workers have become the most productive on the planet.

According to the Organisation for Economic Co-operation and Development (OECD), they added an average of $99.50 (€87) to the value of the Irish economy every hour they worked in 2017.

This put them on top of the OECD’s 36-strong list of advanced economies, ahead of the likes of Luxembourg, Norway and the Republic’s main trading partners, the United States and the UK.

Measured in terms of output per hour worked, productivity is an important gauge of the underlying health of an economy. It is also the main driver of wages and living standards. So how then is the Republic top of the pile and why aren’t we enjoying the corresponding rise in wages that this implies? In a word, multinationals.

Value-added jobs

Technology and innovation underpin productivity growth in most countries, and multinationals tend to lead the way in these areas, creating the big value-added jobs, which, in turn, generate the greatest productivity gains.

An hour spent working for Apple, Google or Facebook creates more value in pure financial terms than an hour spent working for a firm in a more traditional industry.

The OECD productivity metric simply divides the value of the Irish economy, about €300 billion in 2017, by the number of hours worked. Hence the $99.50 average – which puts Ireland at the top – is fuelled by multinationals and therefore flatters the efficiency of the average Irish worker.

The Central Statistics Office (CSO) has done some work in this area, measuring the growth in productivity between 2000 and 2016. It threw up two talking points.

First, the growth rate was inflected in 2015, a year that saw a massive onshoring of multinational assets here and a corresponding 26 per cent jump in gross domestic product (GDP), later derided as leprechaun economics.

Second, there is a major disparity in productivity growth between foreign-owned firms (up 10.9 per cent over the period) and indigenous firms (just 2.5 per cent).

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