NI productivity 40% lower than Republic of Ireland - report

The productivity gap between north and south has been widening for 20 years, according to researchers

Productivity in Northern Ireland is about 40% lower than in the Republic of Ireland, new research suggests.

Productivity measures the amount of economic output generated by each worker.

In the long term, rising living standards are dependent on rising productivity.

The research from Dublin's Economic and Social Research Institute (ESRI) suggests the north-south gap has opened up over the last 20 years.

Measuring Ireland's productivity is complicated by the distortionary effects of large, multinational companies.

The activities of these firms artificially inflates Ireland's GDP and consequently flatters its productivity performance.

The researchers, Adele Bergin and Seamus McGuinness, attempted to tackle this by excluding sectors with high concentrations of multinationals.

This includes things like the manufacture of chemicals and pharmaceuticals and the IT and communications sector.

Even with the exclusion of these sectors, the research still covers about 90% of employment in both jurisdictions.

The research compared productivity in sectors on both sides of the border

The exercise suggests that productivity in Ireland grew by an average of 0.2% per year between 1998 and 2020.

By contrast it suggests that productivity in Northern Ireland fell by an average of 1.2% per year.

This means that having started with similar levels of productivity in 2000 a big gap has opened up over the last 20 years.

It suggests that in 2019 the average output per worker in Northern Ireland was equivalent to 54,000 euro while in Ireland it was 88,000 euro.

Of the 17 sectors compared, the research suggests that Ireland has better productivity in 14 of them.

'Artificially high productivity'

However, the authors caution that there may still be residual multinational effects in some of the Irish data.

For example, the Irish administrative and support services sector is massively more productive than that in NI.

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However, this sector includes the aircraft leasing sector where some global firms are Irish headquartered.

The research says "this may lead to artificially high-recorded productivity in that sector".

'Rapidly improve skills'

An additional economic modelling exercise undertaken by the authors suggests that almost all of the productivity gap can be explained by lower levels of investment and skilled workers in Northern Ireland.

Low investment and relatively low levels of skills are chronic problems in the Northern Ireland economy, although there has been some improvement in skills in recent years.

The authors suggest that if firms in Ireland were faced with the same labour market as exists in Northern Ireland productivity levels would fall by an average of 30% and as much as 60% in some sectors.

They conclude that: "The results demonstrate the relative benefits accruing to Irish firms from having more ready access to skilled labour and investment.

"Our analysis points to the need to rapidly improve skills in Northern Ireland, particularly at the post-secondary level."