Professor Seamus McGuinness:

I thank the Chair for inviting the ESRI to appear before the committee and for the opportunity to discuss the work of the ESRI comparing the economies of the Republic of Ireland and Northern Ireland. I am joined by my colleague, Dr. Adele Bergin.

Together, we have been producing comparative research on the economies of Northern Ireland and the Republic of Ireland for several years. This research journey began with a study on potential constitutional change, published in 2020 in the Cambridge Journal of Economics, in which we provided an initial assessment of the key economic issues relevant to a border poll on Irish unity.

In that study, we demonstrated Northern Ireland’s poor economic performance relative to the Republic of Ireland and hypothesised that this is likely to be due to lower levels of productivity, a widening gap in educational attainment, lower-intensity and poorer-quality FDI and lower levels of export orientation. Since then, we have engaged in research that builds on and informs several of these topics, and now we will present summaries of the research on living standards and overall economic performance, productivity and education.

Others engaged in the debate on future constitutional change have focused on the implications of the performance gap between the Northern Ireland and Republic of Ireland economies on the size of the fiscal subvention to Northern Ireland and the capacity of the Irish State to absorb this sum in a united Ireland. While this is clearly an important issue, we have sought to broaden the discussion. Specifically, our research has focused on identifying the factors that give rise to a situation whereby the UK Government must support Northern Ireland to the degree reflected in the scale of the subvention estimates. A natural follow-on from this is to ask if there are policies that could improve the economic performance of Northern Ireland whereby the scale of the subvention would fall over time to a point where it was less relevant in any discussions of constitutional change. It should be noted that irrespective of constitutional change, policies that can potentially yield economic gains to Northern Ireland should be explored and implemented. However, it is also our view that policies aimed at narrowing the productivity gap between Northern Ireland and the Republic of Ireland should form an integral part of any planning for future constitutional change.

Regarding research findings on living standards and overall economic performance, there is an emerging body of research pointing to the existence of substantial gaps in economic output and living standards between Northern Ireland and the Republic of Ireland. For example, GNI* per capitain the Republic of Ireland was around 51% higher than GDP per capitain Northern Ireland in 2018. Other metrics also point towards higher living standards in the Republic of Ireland relative to Northern Ireland. OECD data showed a gap in household disposable income of 12% in 2017, in favour of the Republic of Ireland. In addition, the proportion of individuals at risk of poverty in Northern Ireland was 14.3% compared with 8.9% in the Republic of Ireland.

An overarching measure that captures overall differences in living standards is life expectancy. For 2020, OECD data revealed that life expectancy at birth for males and females in the Republic of Ireland exceeded that in Northern Ireland by two years. A broad range of factors including income, education and access to healthcare services will together determine life expectancy in a region. As such, differences in life expectancy across countries can be interpreted as a cumulative measure of differences in general welfare and living standards.

With regard to research findings on productivity, the poor performance of the Northern Ireland economy, relative to both the economies of the Republic of Ireland and British regions, has been previously linked to its relative low productivity levels. Productivity is measured by the value of goods and services produced per worker and is a key performance metric. While productivity levels were broadly similar in 2000, over the period 2001 to 2020 productivity in the Republic of Ireland increased by 0.2% per annum and fell by 1.1% per annum in Northern Ireland. By 2020, productivity levels were approximately 40% higher in the Republic of Ireland compared with Northern Ireland.

Our research has shown that productivity in the Republic of Ireland increases with the share of educated workers employed and with levels of investment. For example, with respect to education, our models show that a 1% increase in the share of graduates employed generates a 1% increase in sectoral productivity. The research also finds that export intensity is an important factor in driving Irish productivity. Lower levels of educational provision and investment are important for understanding the gap in productivity between the two regions. Our research indicates that the level of productivity in the Republic of Ireland would be around 50% lower if the country had the same levels of investment and education as Northern Ireland.

However, despite using comparable data sources and the same methodology, we do not find evidence of causal relationships between the usual factors that drive productivity - such as education, investment, exports, etc. - and Northern Ireland productivity. This apparent lack of evidence on the relationship between productivity and the usual drivers for Northern Ireland suggests that productivity in the region has historically been relatively unresponsive to single policy levers, such as changes in education and skills provision. Our analysis suggests that a comprehensive strategy is needed aimed at improving underlying competitiveness among Northern Ireland firms, reforming education and skills provision, and increasing investment in an integrated way. A more integrated approach to economic policy making that is strongly co-ordinated across Government Departments is also required.

On research findings on the education and training systems in Northern Ireland and the Republic of Ireland, in 2022 the ESRI published the first major comparative study of education and training systems in Northern Ireland and the Republic of Ireland. Key findings emerging from the study were that levels of educational attainment in Northern Ireland are lower than those in the Republic of Ireland, with a higher share of the population possessing lower levels of schooling. At the upper end of the qualifications spectrum the proportion of people with third-level qualifications is broadly similar across both regions. However, Northern Ireland has a relatively small proportion who complete a post-secondary, non-third level qualification compared with the Republic of Ireland, where post leaving certificate courses have become more popular. Some 10% of the population in Northern Ireland has this level of qualification, which is typically highly vocational in nature, compared with 30% in the Republic of Ireland.

At the other end of the spectrum, early school leaving is two to three times higher in Northern Ireland compared with the Republic of Ireland and this gap has widened over time. The proportion of 16- to 24-year-olds who leave school with at most a lower secondary qualification is 14% in Northern Ireland, compared with 6% in the Republic of Ireland. This is concerning as early school leavers are more likely to be non-employed or work in low-wage and potentially insecure jobs later in life. At all levels of qualifications, wages are around 40% higher in the Republic of Ireland than in Northern Ireland.

Social class is a much stronger predictor of educational failure in Northern Ireland and the ongoing use of academic selection is likely to strengthen this adverse effect. During the course of extensive interviews and workshops with key stakeholders in both jurisdictions, there was a strong consensus that continued academic selection was generally damaging to social progression through education in Northern Ireland. In the Republic of Ireland, the Delivering Equality of Opportunity in Schools, DEIS, programme was thought to have been very effective in lowering social inequalities and improving outcomes of children from lower-income groups.

More recent research has found evidence of educational downgrading in both regions, whereby a person’s educational attainment actually falls below that of their parents. The extent of educational downgrading among young people was approximately 17% in both jurisdictions. On the other hand, 38% of young people in the Republic Ireland exceeded their parents’ level of education compared with 29% in Northern Ireland. Given the relatively low levels of education in Northern Ireland among older cohorts, we would have expected educational upgrading to be more prevalent in Northern Ireland than it currently is. The continued use of academic selection in Northern Ireland was again identified in our research to be a contributory factor limiting the extent to which the educational system in Northern Ireland facilitates intergenerational educational and earnings mobility.

With regard to other North-South research undertaken by the ESRI, as part of our research programme with the shared island unit, the ESRI has also undertaken research and published reports on topics such as primary healthcare, foreign direct investment, childcare, migrant integration, cross-Border trade and services, housing supply, student mobility, social and political attitudes and gender dimensions to the labour market. We do not have time in the opening statement to discuss this work but we can try to answer any questions from the committee.

To conclude, much discussion about possible constitutional change on the island of Ireland returns to questions related to the fiscal capacity of the Republic of Ireland to absorb Northern Ireland. Much of the ESRI research mentioned here questions the assumptions and analysis underpinning these perspectives. To the extent that the subvention to Northern Ireland from the UK reflects poor economic outcomes that are in turn related to sub-optimal policy, a reduction in the subvention can and should be achieved through improved policy.