Economy

Why has Ireland escaped the productivity puzzle?

The figures tell of two economies, one defined by hyper-productive multinationals and another of less productive indigenous firms

Annual UK productivity growth has averaged 0.5% since the recovery compared to over 2% in the year prior to 2008, leaving Britain lagging behind most of its G7 peers. Photograph: PA Wire

Tue Jul 16 2019 - 05:30

Besides Brexit one of the big issues facing the UK economy is productivity. It has all but flatlined since the financial crisis a decade ago, depressing wage growth, a factor in the Brexit vote itself, and restricting how fast the economy can grow without driving inflation.

Annual productivity growth has averaged around 0.5 per cent since the recovery compared to over 2 per cent in the year prior to 2008, leaving Britain lagging behind most of its G7 peers. The latest quarterly metrics show it actually fell by 0.2 per cent from a year earlier in the first quarter of this year, the third quarterly decline in a row .

The so-called “productivity puzzle” has perplexed UK economists as no one can adequately pinpoint what is really going on.

Is it the fact that the new jobs created since in the crash are predominantly in low-skilled, low-paid sectors where productivity is limited?

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Or is it that the UK has been poor at transferring technology and know-how from the most productive companies to other businesses?

The debate has yet to surface on these shores as our productivity numbers are boosted up by multinationals. According to figures from the Organisation for Economic Co-operation and Development (OECD), released earlier this year, Irish workers were the most productive in the world, adding an average of $99.50 (€87) to the value of the economy every hour they worked in 2017.

But does anyone really believe this? When mulitnationals are removed from the equation the figures show workers here are only half as productive, and might even be less productive than the OECD average.

The figures tell a tale of two economies, one defined by hyper-productive foreign multinationals and another inhabited by less productive indigenous firms.

They also suggest that we may not be immune to some of the issues bedevilling the UK.

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