Gerard Murphy (Cork North West, Fine Gael)
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Question 110: To ask the Minister for Finance his views on the contrasting trends reported by the Central Statistics Office in relation to employment growth and output growth in the economy, which implies an unexplained collapse in productivity growth in the economy here. [7966/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The CSO's most recent employment figures, taken from the quarterly national household survey, show that average employment in 2005 was 1,952,000 people. This was an increase of 87,000 jobs, or 4.7%, on 2004. The sectors making the greatest contribution to this increase were construction, up by 30,900 or 14.4%, financial and other business services, up by 18,500 or 7.7%, wholesale and retail trades, up by 11,700 or 4.4% and health, up by 9,400 or 5.2%. On the other hand, employment in industry fell by 7,600 persons, 2.5%.

The CSO's most recent estimate shows that GDP in the first three quarters of 2005 was 4% higher than in the same period of 2004. Output in all sectors was up on 2004, with the exception of the agriculture sector. While full year data are not yet available, estimates contained in budget 2006 point to GDP growth of 4.6% for last year.

The growth in employment and GDP can be used to calculate a crude indicator of the trend in labour productivity. To do this requires comparing growth in employment and GDP in 2005, which were 4.7% and an estimated 4.6% respectively. This implies that there was little or no increase in aggregate labour productivity in 2005.

Care should be taken in interpreting differences between trends in employment and in GDP because timing differences and statistical volatility can affect the results. In particular, estimates of GDP are still subject to revision. However, there is evidence in recent years to suggest that while labour productivity levels continue to increase, the rate of growth is slower than previously.

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 growth rates in Ireland have been exceptionally high compared with other countries because of the large numbers of foreign owned high technology 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 such as construction and retail, with the result that the overall productivity levels have not grown as quickly as in the past, although the total numbers employed have increased at a record rate.

While employment growth in 2005 has marginally exceeded the estimated growth in output as measured by 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.