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Labour productivity in Ireland’s ICT sector was five times greater than EU counterparts in 2019, the ESRI said, and a contraction would have a significant impact on the economy.
Nearly €34bn of value in the Irish economy is at risk in the event of a major shake-up in our tech sector, according to a new report.
The Economic and Social Research Institute (ESRI) noted that Big Tech companies such as Meta, Stripe and Twitter have had “significant reductions” to their staff numbers, internationally and in Irish offices.
This has sparked concerns that Ireland’s ICT sector is set to experience a “significant contraction” after a period of sustained employment growth throughout the pandemic.
ESRI said in its latest quarterly assessment that the multinational sector, and tech in particular, makes “extremely valuable contributions” to the Irish economy.
In 2019, labour productivity in Ireland’s ICT sector was five times greater than EU counterparts and 3.5 times greater than Belgium, which has the second highest labour productivity in Europe behind Ireland.
To examine the impact a “significant contraction” in this sector would have on Ireland, ESRI calculated the results if Irish ICT productivity dropped to Belgian levels, based on 2019 figures.
In this scenario, the value add of ICT for the Irish economy would fall by more than 70pc from €46.8bn to just €12.9bn, representing a loss of nearly €34bn.
ESRI said that Ireland’s ICT productivity started to diverge “quite dramatically” compared to other EU countries from 2005 onwards.
This difference became more pronounced after 2015 due to a “notable increase in capital inflows of R&D-related intangible assets”.
“In many instances, the productivity rates are likely to be higher here as firms have relocated intangible assets to the Irish market, which boosts the capital per worker and output per worker rates substantially,” ESRI said.
“The risk, therefore, is that if these assets are moved to another jurisdiction, then domestic productivity rates will drop sharply with a commensurate drop in output.”
While ESRI focused on the economy risks if labour productivity was impacted, it said there are also concerns that lower employment in the ICT sector could affect areas such as income tax or corporation tax revenue. The institute said further research would be required to explore those risks
“However, it is also clear that these sources of activities are of huge importance to the Irish economy and that policymakers must continue to ensure that Ireland is a competitive location for this type of inward foreign direct investment,” ESRI said.
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