Productivity decline of around 29% in construction and 14% in accommodation and food services among steepest in Europe despite continued growth in economy and record employment levels
1st November 2024 – The latest SME Monitor published today by Banking & Payments Federation Ireland (BPFI) highlights a steep decline in labour productivity levels in key SME sectors such as construction and accommodation and food and calls for a move away from one-off State subsidies for SMEs to targeted investment in training and capital to ensure their long-term sustainability.
Strong growth in employment in most sectors
Commenting on today’s report, Ali Uğur, Chief Economist BPFI stated: “Today’s SME Monitor shows that the Irish economy has performed well, particularly in the past two years, in terms of both output and employment growth, with the most recent data published by the Central Statistics Office (CSO) showing that the Irish economy grew by 5% in 2023 in real terms. This is expected to continue, albeit at a slower rate.”
Labour productivity has declined in key services sectors
“However, while average labour productivity between the end of 2019 and the second quarter of 2024 increased by around 6% in the Irish economy, according to the CSO, there has been a sharp decline of around 29% in construction and 14% in accommodation and food services sectors. If we look at this in a European context the Irish accommodation and food service sector recorded the second steepest decline in labour productivity since 2015 (after the Czech Republic), as well as the third steepest decline in construction (after the Czech Republic and Austria). These are sectors where SMEs account for 80% and 62% of employment, respectively.”
Mr Uğur added: “This comes at a time when many SMEs are under increased pressure as a result of changes seen in recent years including increases in the minimum wage, the introduction of statutory sick pay, the return to the 13.5% VAT rate in the hospitality sector and repayments for debt warehousing accumulated during Covid-19. Moreover, the introduction of the higher employer PRSI rates this month and the proposed pension auto-enrolment scheme expected to be introduced next year, are likely to further impact businesses, especially SMEs.”
He concluded: “While some of the productivity challenges at individual companies may relate to scale and size, we believe addressing skill mismatches both at firm and industry level, as well as training, can play a role in improving productivity levels. Furthermore, capital investment such as improved technology and automation, as well as process enhancements, may be key for some businesses. Ultimately, in order to ensure long-term sustainability, state supports for businesses, and particularly SMEs, need to move from one-off supports subsidising costs to targeted investments.”
The BPFI SME Monitor October 2024 can be downloaded here.
