In this blog, NERI economist Chris Smart uses a dataset provided by the Central Statistics Office (CSO) to calculate a variety of regional indicators. He looks at gross value added (GVA) and how it is affected by the sectoral makeup of different NUTS regions and on GVA per hour worked.
The blog is based on his two InBriefs, 'Regional productivity in Ireland: an overview' and ' Regional productivity in Ireland: GVA per hour worked'.
Trying to examine the regional dimension of productivity is a challenge at the best of times; in the Irish context, contending with distortions caused by multinational activity makes it a particularly acute uphill struggle.
Traditional indicators such as gross value added (GVA) have become distorted to the point of being unusable, making the diagnosis of problems or the suggestion of policy responses even more difficult than it typically is.
Gross value added is defined as output minus intermediate consumption; typically, it captures the value created in an economy and the productivity of its workers. However, when this metric is biased by the allocation of economic activity and profit which may or may not be occurring here in any tangible sense, then using GVA as a way to understand Ireland’s productivity becomes complicated.
At the NERI, we were provided with a dataset by the Central Statistics Office containing GVA by NUTS2 and NUTS3 region, as well as the number of individuals in the labour force by region and their hours worked, allowing us to carry out a comparative regional analysis.
An important aspect was that those in the labour force, and their hours worked, were defined either as all those in employment or all those who are employees, making it possible to derive additional indicators for the self-employed (those in employment but not employees), which allowed us to examine patterns of self-employment across regions, as well as the recovery in hours worked (both total and average) for the various employment types during the 2010s.
Additional CSO releases concerning GVA by NACE activity in each of these regions acted as a useful supplementary data source, helping us to pinpoint some of the sources of distortions in the national accounts and regional profiles, particularly from 2015 onwards.
The most striking thing was the sheer scale of the distortions that emerge after 2015, and the difficulty they present in trying to develop a regional picture or conduct any sort of comparative analysis between regions or sectors. The inclusion of the South-West and the Mid-West in any analysis of Manufacturing output or the productivity of its employees becomes an impossible task after this point, making the appraisal of other regions relative to these also more challenging.
A case-in-point of this is looking at the relative performance of the Northern and Western region when compared with the other two NUTS2 regions. GVA per worker or per hour worked are clearly lagging throughout the 2010s, although overall output was growing. Looking at hours worked by employment class shows that employees in the Northern and Western region work less intensively than in others, which might point to a higher incidence of part-time work or a weaker recovery in demand. Comparing across other NUTS2 regions in Europe, the rate of growth in the Northern and Western region doesn’t appear to be any better or worse. Rather it is part of a general picture of stagnation over the past decade, with growth typically spurred by greater numbers in the labour force rather than any growth in multi-factor productivity. However, if the output growth in the other Irish regions is an accounting anomaly rather than tangible growth, it isn’t obvious what lessons or policy prescriptions can be gleaned from this comparison when trying to correct for the Northern and Western region’s relative “stagnation”.
One of the indicators we have that isn’t prone to such distortions is the hours worked indicator, and its breakdown into hours worked by employees and the self-employed in the different NUTS2 regions. The relative stagnation in hours worked in the Northern and Western region, as well as the significantly higher hours worked by the self-employed in the Northern and Western region and the Southern region, are avenues for further research. Highlighting the prevalence of low-work intensity and providing supports to those affected has the potential to boost the disparity in outcomes between regions. Additionally, if there is a large cohort of individuals who are self-employed and working intensively to their detriment, without benefitting from improved personal outcomes or higher productivity as a result, then this is a serious policy failure that should be analysed further and addressed with urgency.
So where do we go from here? Disentangling the hidden messages within our national accounts from a productivity perspective is a challenging task. Recent work the Irish Fiscal Advisory Council seeks to strip out the distortive sectors to achieve a more accurate estimate of domestic productivity. Analysis of the regional dimension by the Western Development Commission and others helps us to understand how regional growth is occurring in the absence of meaningful output metrics. Despite these difficulties, it is important to push on and attempt to disentangle the messages which are available in order to better understand the challenges we face and the paths forward.