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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