Ireland has continued to demonstrate strong levels of labour productivity in recent years. However, an overreliance on a small number of high-performing sectors, most notably IT and pharma, is distorting the country’s performance and disguising underperforming industries and firms.
That's according to a new report from the National Competitiveness Council (NCC), which warns increasing productivity across all business sectors is needed to enhance competitiveness and support economic growth.
In a bulletin published on Wednesday, the NCC said that despite the severe impact of the downturn on output and employment levels, Ireland had the fifth-highest labour productivity level among OECD member states in 2014. But it added that while productivity levels were also above the euro zone average, “Ireland’s performance is greatly influenced by shifts in the composition of employment and the influence of foreign direct investment [FDI] on output.”
‘Narrow base’
“The narrow base of enterprise in high-value-added sectors (particularly in pharma and IT) disguises, to a degree, underperforming sectors and boosts Ireland’s productivity levels,” the NCC said.
It warned the narrow base of sectors driving productivity performance leaves Ireland vulnerable to economic shocks.
The report says that while financial services and professional services sectors have also made positive contributions to business sector productivity growth, domestically focused industries such as wholesale, retail, transport, accommodation and food are considerably weaker compared to other countries.
‘Productivity trap’
“Increased productivity across all sectors remains a significant challenge. Ireland can take advantage of a sizeable competitiveness opportunity if we can avoid the ‘productivity trap’ being experienced by many developed economies,” the NCC said.
“Facilitating enterprise and startups, trade, access to finance, skills and infrastructure are key to productivity and competitiveness gains,” it added.
