Richard Bruton (Dublin North Central, Fine Gael)
Link to this: Individually | In context

Question 158: To ask the Minister for Finance his views on the contrasting trends reported by the Central Statistics Office regarding employment growth and output growth in the economy, which implies an unexplained collapse in productivity growth in the economy. [28595/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

The CSO's most recent employment figures, taken from the Quarterly National Household Survey, showed that there were 1,929,200 people employed in the second quarter of 2005. This was an annual increase of 93,000 jobs, or 5.1%.

The sectors making the greatest contribution to this increase were construction, which was up by 36,400; and financial and other business services, which includes a wide range of service activities and was up by 20,100. Employment in the wholesale and retail trades also grew by approximately 7,000. On the other hand, employment in industry fell by over 6,000 persons and there was a decrease of about 3,000 in agriculture.

The CSO's estimate of GDP, that is, the total output of goods and services in the economy, for the second quarter of this year showed an annual increase of 4.1%. Output of all sectors, other than agriculture, forestry and fishing, was up on the previous year.

By comparing the growth in employment and GDP, it is possible to calculate a crude indicator of the trend in labour productivity. For example, employment in the first half of 2005 was up 4.5% and in the same period GDP increased by 3.1%, implying an apparent decline in aggregate labour productivity of about 1.3%. However, care should be taken in interpreting differences between trends in quarterly employment and in GDP because timing differences and statistical volatility can affect the results. It is too early to conclude that aggregate productivity in 2005 has declined but there is evidence in recent years that while labour productivity levels continue to increase, the rate of growth is slower than was previously the case.

A major factor influencing the slowdown in the rate of increase in labour productivity is the change in the sectoral composition of the workforce. Productivity rates in Ireland have been exceptionally high compared with other countries because of the large numbers of foreign-owned high-tech industries that generate very high levels of output or value added. However, much of the strong employment growth in employment in recent years has been in other sectors of the economy with the result that the overall productivity levels have not grown as quickly in the past and are moving closer to the international norm. With more persons employed in construction and in the retail and service sectors, average output per worker has not grown as quickly as in previous years, although the total numbers employed have increased at a record rate.

In summary, while employment growth in the first half of 2005 has exceeded the growth in output as measured by the GDP, it is too early to conclude that there has been an unexplained collapse in labour productivity. The available information is still limited and part of the fall is explained by changes in the composition of employment. However, this is something that needs to be monitored as more information becomes available.