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Productivity and the Northern Ireland Economy

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Productivity and the Northern Ireland Economy presented by Paul Mac Flynn, Senior Economist, NERI

Productivity in many western economies has been stagnant in the years following the 2008 financial crash. The UK has been among the worst performing economies and within it, Northern Ireland has been a consistent laggard. Many have attributed Northern Ireland’s comparatively weak productivity performance to differences in the industrial make-up of the region. However, headline sectoral figures do not bear this out. The productivity gap between Northern Ireland and the rest of the UK lies within industries and sectors. This paper seeks to highlight the sectors and industries where Northern Ireland falls behind and to consider why they fall behind.
Manufacturing and Public Services are sectors where Northern Ireland performs well while Agriculture and most of the Services Sector drag overall productivity down. In many cases Northern Ireland’s firms lack the scale of their counterparts in Great Britain, but even adjusting for this many firms still fall behind. To compound the problem, in many cases activity is concentrated in areas where Northern Ireland has a productivity deficit and less concentrated in areas where it is more productive.
There are economy wide productivity issues relating to skills and physical capital investment where Northern Ireland has structural challenges to overcome. In addition to tackling sectoral issues, enterprise policy also need to focus on stimulating demand for skills among employers and employees while encouraging a culture of innovation among firms that lack the market incentive to do so.

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Productivity and the Northern Ireland Economy

  1. 1. Productivity in NI: Strengths and Weaknesses PAU L M AC F LY N N N E R I ( N E V I N E C O N O M I C R E S E A RC H I N S T I T U T E ) B E L FA S T PAU L . M AC F LY N N @ N E R I N ST I T U T E . N E T W W W. N E R I N ST I T U T E . N E T NERI Monthly Seminar 13.12.17
  2. 2. Outline 1. The Problem 2. Regional Issues 3. Vulnerable Sectors 4. Economy wide issues 5. Solutions?
  3. 3. The Problem 66 68 70 72 74 76 78 80 82 84 0 5,000 10,000 15,000 20,000 25,000 30,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 NI UK NI/UK
  4. 4. The Problem 70 72 74 76 78 80 82 84 86 88 90 92 94 96 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Per Hour (UK) Per Job (UK) Per Head (UK) Per Head (EU)
  5. 5. The Problem 0 10 20 30 40 50 60 Regional GDP
  6. 6. The Problem – Regional? 73.3 140 58 68 55 64 0 20 40 60 80 100 120 140 160 NI Belfast Outer Belfast East of Northern Ireland North of Northern Ireland West and South of Northern Ireland
  7. 7. The Problem – Regional? 0 20 40 60 80 100 120 140 160 NI Belfast Outer Belfast East of Northern Ireland North of Northern Ireland West and South of Northern Ireland GVA per capita as % of UK total 1997 2015
  8. 8. The Problem – Regional? 0 5000 10000 15000 20000 25000 30000 35000 40000 Belfast Glasgow City Edinburgh, City of Cardiff and Vale of Glamorgan Bristol, City of Birmingham Leeds Liverpool Manchester GVA per Capita as % of UK total
  9. 9. The Problem – Regional? 42000 43000 44000 45000 46000 47000 48000 49000 50000 51000 52000 Belfast Outer Belfast East of Northern Ireland North of Northern Ireland West and South of Northern Ireland GVA per job
  10. 10. The Problem - Sectoral 25 26 8 11 7 8 6 4 64 60 83 82 5 6 2 3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% UK 1978 NI 1978 UK 2014 NI 2014 Sectoral Employment UK & Northern Ireland 1978 & 2014 Manufacturing Construction Services Other Production
  11. 11. The Problem – Sectoral Mix Sector NI Emp Mix GB Emp Mix Agriculture 353 110 Mining 124 100 Manufacturing 5027 3813 Electricity & gas 405 480 Water 603 582 Construction 1966 1971 Retail 4761 4249 Transportation 1367 1749 Accommodation & food 963 1024 Info & Communication 1089 1764 Finance 1360 1781 Real estate 2842 5770 Professional & scientific 1316 2509 Administration 1198 1616 Public Administration 3625 2322 Education 2441 2412 Health 3818 3012 Arts 372 505 Other 699 789 Total 34410 36558
  12. 12. The Problem Industry % Productivity Gap Agriculture -62.1 Mining -74.8 Manufacturing -4.0 Electricity & gas -12.1 Water 24.5 Construction -28.2 Retail -4.2 Transportation -12.7 Accommodation & food -14.5 Info & communication -30.2 Finance -37.0 Real estate -4.9 Professional & scientific -19.4 Administration -20.3 Public Administration 20.8 Education -3.4 Health -6.7 Arts -11.1 Other -17.2
  13. 13. Agriculture 0 5 10 15 20 25 30 35 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Agriculture NI Agriculture UK
  14. 14. Agriculture – Farm Size 76.4 33.4 12.3 25.7 5.0 14.6 34.8 26.3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% NI England Large Medium Small Part-time
  15. 15. Agriculture – Farm Income 0 20000 40000 60000 80000 100000 120000 Part-time Small Medium Large NI England
  16. 16. Construction 0 5 10 15 20 25 30 35 40 45 50 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 UK NI
  17. 17. Construction 25% 22% 18% 11% 19% 8% 3% 3% 8% 19% 26% 37% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% NI GB Construction Output in NI and GB by sector All Repair & Maintenance Private Commercial Private Industrial Non-housing Public Infrastructure Housing
  18. 18. Administration 15 17 19 21 23 25 27 29 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 NI UK
  19. 19. Administration 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 NI Employment and Output in Administration as % of UK Employment Output
  20. 20. Economy-wide Issues - Skills 60 65 70 75 80 85 90 95 100 105 110 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Number of 16-64 with no skills by region (2004=100) England Wales Scotland Northern Ireland
  21. 21. Economy-wide Issues - Skills • High Skills Supply from Workers • Low Skills Demand from Firms • Low Skills Supply from Workers • Low Skills Demand from Firms • Low Skills Supply from Workers • High Skills Demand from Firms • High Skills Supply from Workers • High Skills Demand from Firms Skills Surplus Skills Deficit HSEq LSEq
  22. 22. Economy-wide Issues - Skills
  23. 23. Solutions? Need to boost sectors with high productivity – Manufacturing Need to boost productivity within under-performing sectors (the harder part) ◦ Boost supply AND DEMAND for skills ◦ Need to tackle a lack of ambition, firm-size, investment, innovation. Possibly a lack of competition. No silver bullet solution, sector by sector, region by region.

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