FIRM LEVEL PRODUCTIVITY IN IRELANDDepartment of Finance Policy Conference, 8 March 2018
Outline
• High level macro picture
• Firm level analysis – OECD MultiProd model
• MultiProd Results (2006-2014)• Concentration measures
• Productivity Distribution
• Resource Allocation
2
3
High level of labour productivity
GDP and GNI per hour worked (2015 USD - 2011 PPPs)
€67
€57
30
35
40
45
50
55
60
65
70
75
France Germany Ireland (GDP) United Kingdom
United States Japan Ireland (GNI) OECD - Total
Source: OECD
4
Productivity level driven by certain sectors
Decomposing the euro area (EA) - Ireland productivity gap into sectoral contributions (2014)
Source: EU KLEMS
1
42
74
2 1 48 9
36
1000
20
40
60
80
100
120
EA GVA/HR Sector Mix Agriculture Miningutilities
Manuf expharma
Pharma Construction W/sale,retail, t/port,accom, food
Info andcomm
Financialinsurance
Prof andadmin
services
IrelandGVA/HR
5
Decline in growth rate
-6%
-4%
-2%
0%
2%
4%
6%
8%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Labour Productivity MFP LP trend MFP trend
Source: CSO experimental estimates of productivity (forthcoming)
Year-on-year productivity growth in Ireland
Need for firm-level productivity analysis
6
Aggregate productivity statistics hide underlying drivers
Three channels of aggregate productivity growth (OECD):i. Innovation at the frontier
ii. Diffusion from frontier to laggard firms
iii. Resource allocation
… each of these factors may call for different policy responses.
OECD MultiProd model uses confidential firm-level data to generate non-
confidential aggregate statistics which can be used for cross country analysis
Produces both labour productivity and MFP measures
Industry and sectoral statistics
Percentiles of distribution (10th, 50th, 90th), age, size, ownership, etc.
Various measures of resource allocation
Sample (panel): 2006 – 2014
Manufacturing: 2,500 firms (yearly average)
Services: 7,500 firms (yearly average)
Business Register – BR (whole population of firms)
7
The MultiProd Model
8
The MultiProd Model – cross country results
80
85
90
95
100
105
110
115
2006 2007 2008 2009 2010 2011 2012
Manufacturing
p10 p50 p90
80
85
90
95
100
105
110
115
2006 2007 2008 2009 2010 2011 2012
Services
p10 p50 p90
• Evidence of widening gap between most and least productive firms
MultiProd Results for Ireland (2006-2014)
9
10
Concentration – the contribution of largest firms
Manufacturing94%
88%
0% 20% 40% 60% 80% 100%
Share of VA by sales quantile
87%
73%
0% 20% 40% 60% 80% 100%
Share of Employment by sales quantile
Manufacturing
Services
Irish results more concentrated than the cross-country MultiProd results• Manufacturing: 80% of VA and 68% of employment in cross-country• Services: 79% of VA and 66% of employment
Source: MultiProd on the basis of CSO data
11
Concentration – the contribution of most productive firms
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Manufacturing
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Services
• Most productive firms in manufacturing account for 70 percent of aggregate productivity on average over 2006-2014
• 40 percent (on average) in services, although growing over the period
Source: MultiProd on the basis of CSO data
12
Labour productivity distribution – across sectors
Textiles & apparel
Transport equipment
Rubber & plastics
Furniture & other
Food & beverages
Metal products
Wood and paper prod.
Electrical equipment
Machinery and equipment
Computer & electronics
Chemicals
Pharmaceutical
Manufacturing sectors
Hotels and restaurants
Wholesale & retail
Administration services
Transportation & storage
Real estate activities
Marketing & other
Media
Telecommunications
IT
Legal & accounting
Scientific R&D
Services sectors
• Results broadly consistent with results of the MultiProd benchmark group
Source: MultiProd on the basis of CSO data
13
Labour productivity distribution – across sectors –foreign and domestic
Source: MultiProd on the basis of CSO data
-100%-50% 0% 50% 100% 150% 200% 250% 300%
Textiles & apparel
Transport equipment
Rubber & plastics
Furniture & other
Food & beverages
Metal products
Wood and paper prod.
Electrical equipment
Machinery and equipment
Computer & electronics
Chemicals
Pharmaceutical
Manufacturing
Foreign Domestic
-100% -50% 0% 50% 100% 150% 200%
Hotels and restaurants
Wholesale & retail
Administration services
Transportation & storage
Real estate activities
Marketing & other
Media
Telecommunications
IT
Legal & accounting
Scientific R&D
Services
Foreign Domestic
14
Foreign firm Labour productivity and employment premium
Source: MultiProd on the basis of CSO data
11%
24%
50%
61%
61%
66%
70%
83%
114%
117%
123%
Productivity premium: 399%
(5.7)
(5.6)
(15.1)
(5.3)
(7.3)
(3.7)
(4.6)
(34.2)
(3.2)
(3.1)
(20.4)
Average foreign firm employment multiple: (2.8)
0% 50% 100% 150% 200% 250% 300% 350% 400% 450%
Electrical equipment
Textiles & apparel
Computer & electronics
Machinery and equipment
Wood and paper prod.
Chemicals
Rubber and Plastic
Furniture & other
Food & beverages
Metal products
Transport equipment
Pharmaceutical
Manufacturing
15
Foreign firm Labour productivity and wage premium
Source: MultiProd on the basis of CSO data
Food & beverages
Textiles & apparel
Wood and paper prod.
Chemicals
Pharmaceutical, 399%
Rubber & plastics
Metal products
Computer & electronics
Electrical equipment
Machinery and equipment
Transport equipment
Furniture & other Wholesale & retail
Transportation & storage
Hotels and restaurants
Media
Telecommunications
IT
Real estate activities
Legal & accounting
Scientific R&D
Marketing & other
Administration services
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
0% 20% 40% 60% 80% 100% 120% 140% 160%
Fore
ign
fir
m p
rod
uct
ivit
y p
rem
ium
Foreign firm wage premium
16
Productivity dispersion – labour productivity
Source: MultiProd on the basis of CSO data
50
60
70
80
90
100
110
2007 2008 2009 2010 2011 2012 2013 2014
Services
p10 p50 p90
50
60
70
80
90
100
110
2007 2008 2009 2010 2011 2012 2013 2014
Manufacturing
p10 p50 p90
17
Productivity dispersion – labour productivity
Source: MultiProd on the basis of CSO data
50
60
70
80
90
100
110
2007 2008 2009 2010 2011 2012 2013 2014
Services
p10 p50 p90 Avg
50
60
70
80
90
100
110
2007 2008 2009 2010 2011 2012 2013 2014
Manufacturing
p10 p50 p90 Avg
18
Efficiency of Resource Allocation – Olley Pakes Method
56% 48% 58%55% 66% 63% 65%
51%
54%
-
40,000
80,000
120,000
160,000
200,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Manufacturing
Unweighted productivity OP gap LP Weighted productivity
• Aggregate productivity can be decomposed into contribution from efficiency of resource allocation (the OP gap) and “within firm” productivity (unweighted productivity)
• Efficiency of resource allocation high in manufacturing (large OP Gap)• Low for services
Source: MultiProd on the basis of CSO data
4% 6% 11% 5% 21%13%
-
40,000
80,000
120,000
160,000
200,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Services
19
Efficiency of Resource Allocation – FDI impact
56% 48% 58%55% 66% 63% 65%
51%
54%
-
40,000
80,000
120,000
160,000
200,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Manufacturing
Unweighted productivity OP gap LP Weighted productivity
• Foreign dominated sectors drive outcome in manufacturing
Source: MultiProd on the basis of CSO data
38% 25%40%
14% 37%29% 29% 26% 33%
-
40,000
80,000
120,000
160,000
200,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Manufacturing, without foreign dominated sectors
Aggregate productivity levels comparatively high (and driven by foreign dominated sectors), but growth rate declining
Skewed distributions Large firms dominate value add and employment Most productive firms dominate aggregate productivity Foreign firm productivity, size and wage premium
Productivity dispersion (i.e. ‘the gap’) is widening
Efficiency of resource allocation in manufacturing driven by foreign firms (in specific sectors)
FDI Spillovers (ESRI): limited evidence, some in services, (enhancing) the absorptive capacity is of Irish owned firms is key
20
Conclusions
Appendix
21
22
Efficiency of Resource Allocation – cross country results
0 20000 40000 60000 80000 100000 120000 140000 160000 180000 200000
IRL
BEL
NOR
DNK
SWE
NLD
AUT
FRA
FIN
IRL*
AUS
JPN
LUX
CAN
ITA
HUN
PRT
CHL due to the efficiency of resourceallocation
in 2005 USD Purchasing Power Parity terms
Productivity Spillovers from Multinationals to Irish-owned Firms
23
Mattia Di Ubaldo, Martina Lawless, Iulia Siedschlag
Economic and Social Research Institute (ESRI)
Spillovers from FDI (ESRI)
• Productivity spillovers from multinational enterprises could arise from different channels:
• Demonstration effects
• Competition effects
• Supply chain linkages
• Labour mobility
Productivity Spillovers from FDI (ESRI)
• Only limited evidence of spillovers linked to the presence of foreign-owned firms in the same industry or in the same region • Evidence of positive intra-industry spillovers in services, and more so to R&D
intensive services firms
• Evidence of both negative and positive spillovers through supply chain linkages • On average, negative or no spillovers from forward and backward linkages
• But positive spillovers to R&D intensive firms which supply multinationals
• Indigenous firms’ absorptive capacity is key to benefiting from multinationals’ advanced knowledge and technologies
Department of Finance
Government Buildings
Upper Merrion Street
Dublin 2
Ireland
www.finance.gov.ie
@IRLDeptFinance
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The Department of Finance does not guarantee the accuracy or completeness of information which is contained in this document and which is stated to have been obtained from or is
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No representation is made as to the reasonableness of the assumptions made within or the accuracy or completeness of any modelling, scenario analysis or back-testing.
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