Productivity: Ireland leads the way

Ireland now leads the United States in labor productivity as measured by GDP (converted to USD after adjusting for purchasing power parity) to hours worked by the workforce. Mark Cassidy writes on Ireland’s strong productivity growth during the 1990s:

Strong productivity growth during this period was largely driven by substantial foreign direct investment inflows from the United States and sectoral change in industry — i.e. a continuing shift of capital and labour from agriculture and relatively low productivity manufacturing towards high-technology sectors including chemicals and ICT sectors — and was facilitated by macro and micro-economic reforms implemented since the late 1980s, favourable exchange rate and international economic developments, increased European integration and the availability of a young, relatively well-educated workforce.

Two factors stand out:

  1. Ireland joined the euro-zone on its official launch in January 1999;
  2. The Irish government is committed to a 12.5% corporate tax regime, among the lowest in Europe.

Removal of trade barriers and favorable tax rates attracted large investment in high-tech manufacturing, primarily from the United States.