Gerard Murphy (Cork North West, Fine Gael)
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Question 113: 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 here. [38843/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The CSO's most recent employment figures, taken from the quarterly national household survey, showed that there were 1,989,800 people employed in the third quarter of 2005. This was an annual increase of 96,200 jobs, or 5%. The sectors making the greatest contribution to this increase were construction, up by 13.7%, and financial and other business services, which increased by 8.3%. Employment in the wholesale and retail trades also grew by 6.1%. On the other hand, employment in industry fell by more than 3.6% and there was a decrease of about 0.25% 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 grew by 4.5% on an annual basis. Over 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 factors and statistical volatility can affect the results. It is too early to conclude definitively that aggregate productivity in 2005 has declined but there is evidence from recent years that while labour productivity levels continue to increase, the rate of growth is slower than previously.

A major factor influencing the slow down 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 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 as 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 as a result an unexplained collapse in labour productivity. The available information is still limited, and subject to revision in some cases, 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.