PATTERNS OF FIRM LEVEL PRODUCTIVITY IN IRELAND RESULTS

8 March 2018

PATTERNS OF FIRM LEVEL PRODUCTIVITY IN IRELAND

RESULTS FROM MULTIPROD MODELJavier Papa, Luke Rehill and Brendan O’Connor

NCC meeting, 8th March 2018

Outline

• High level macro picture

• Firm level analysis - MultiProd

• 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: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

Granularity – the contribution of largest firms (1)

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

Granularity – 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


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 (excl. scientific R&D)


13

Labour productivity distribution – across sectors –foreign and domestic


-100% -50% 0% 50% 100% 150% 200% 250% 300%

Textiles & apparel

Transport equipment

Rubber & plastics

Furniture & other

Food & beverages

Metal products





Chemicals

Pharmaceutical

Manufacturing

Foreign Domestic

-100% -50% 0% 50% 100% 150% 200%


Wholesale & retail




Marketing & other

Media

Telecommunications

IT

Legal & accounting

Scientific R&D

Services

Foreign Domestic

14

Foreign firm Labour productivity and employment premium


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%


Textiles & apparel




Chemicals

Rubber and Plastic

Furniture & other

Food & beverages

Metal products

Transport equipment

Pharmaceutical

Manufacturing

15

Foreign firm Labour productivity and wage premium


Food & beverages

Textiles & apparel


Chemicals

Pharmaceutical, 399%

Rubber & plastics

Metal products




Transport equipment

Furniture & other Wholesale & retail



Media

Telecommunications

IT


Legal & accounting

Scientific R&D

Marketing & other


0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

0% 20% 40% 60% 80% 100% 120% 140% 160%

Fore

ign

fir

m w

age

pre

miu

m

Foreign firm labour productivity premium

16

Productivity dispersion – labour productivity


50

60

70

80

90

100

110

2007 2008 2009 2010 2011 2012 2013 2014

Services

p10 p50 p90 Avg

40

50

60

70

80

90

100

110

2007 2008 2009 2010 2011 2012 2013 2014

Manufacturing

p10 p50 p90 Avg

Significant dispersion in the productivity between

frontier and laggard firms for most countries

Productivity dispersion generally higher in services

than in manufacturing.

For Ireland 2011: manufacturing firms at the top of

the distribution are six times more productive than

those at the bottom productivity decile, and

similarly nine times in services

Dispersion in Ireland in line with the OECD

MultiProd average ratios across countries in both

sectors.

17

Productivity dispersion – by country

Country

2011

(Labour Productivity) p90-p10 ratio

Manufacturing Services

Australia 6.7 7.8

Austria 7.1 11.2

Belgium 5.0 5.7

Chile 20.1 34.1

Denmark 4.3 7.1

Finland 3.2 4.0

France 3.9 6.1

Hungary 16.3 26.8

Indonesia 22.4 -

Italy 5.3 7.5

Japan 3.5 4.0

Netherlands 7.4 19.7

New Zealand 6.3 8.1

Norway 5.6 8.8

Portugal 6.6 14.2

Sweden 4.3 6.4

OECD (MultiProd) 6.6 9.2

Ireland 6.2 9.2

Ireland (2014) 6.4 9.2


18

Efficiency of Resource Allocation – Olley Pakes Method (1)

56% 48% 58%55% 66% 63% 65%

51%

54%

-20,000

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

Manufacturing

-1% -6% -4%

4% 6% 11% 5% 21%13%

-20,000

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

Services

• Olley-Pakes (OP) gap measures efficiency in the allocation of resources, linking productivity and firm size• In manufacturing, more than a half of aggregate labour productivity is accounted for by allocative

efficiency • In services, most of aggregate productivity is accounted for by within-firm (unweighted) productivity


19

Efficiency of Resource Allocation – Olley Pakes Method (2)

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

• More than a half of aggregate labour productivity accounted for by allocative efficiency • Foreign dominated sectors drive this outcome• Resource allocation contributing positively to aggregate productivity growth (though declining)

– see paper


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

20

Efficiency of Resource Allocation – Olley Pakes Method – cross country

• More than a half of aggregate labor productivity accounted for by allocative efficiency • Foreign dominated sectors drive this outcome• Resource allocation contributing positively to aggregate productivity growth (though declining)

– see paper

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

Manufacturing

due to the efficiency of resource allocation

in 2005 USD Purchasing Power Parity terms

21

Resource allocation – dynamic OP decomposition

• Very small contribution to productivity growth from entrants and exitors


-0.15

-0.10

-0.05

0.00

0.05

0.10

2007 2008 2009 2010 2011 2012 2013 2014

Manufacturing

-0.25

-0.20

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

2007 2008 2009 2010 2011 2012 2013 2014

Services

Aggregate productivity levels comparatively high, but growth rate declining

Skewed distributions Large firms dominate value add and employment

Most productive firms dominate aggregate productivity

Large foreign firm productivity premium

Productivity dispersion (i.e. ‘the gap’) is widening

Efficiency of resource allocation driven by foreign firms (in specific sectors)

FDI Spillovers (ESRI, Di Ubaldo et al.): limited evidence, some in services, (enhancing) the absorptive capacity is of Irish owned firms is key

22

Conclusions

Department of Finance

Government Buildings

Upper Merrion Street

Dublin 2

Ireland

www.finance.gov.ie

@IRLDeptFinance

This presentation is for informational purposes only.

No person should place reliance on the accuracy of the data and should not act solely on the basis of the presentation itself.

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

based upon trade and statistical services or other third party sources. Any data on past performance contained herein is no indication as to future performance.

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.

All opinions and estimates are given as of the date hereof and are subject to change.

The information in this document is not intended to predict actual results and no assurances are given with respect thereto.

Documents

PATTERNS OF FIRM LEVEL PRODUCTIVITY IN IRELAND RESULTS