Productivity is crucial for an economy’s health, but it is an area where Northern Ireland persistently underperforms.
When we hear the word productivity, we often think about our own productivity, and how hard we work. For an economy, productivity means something slightly different. It measures the total value of what we produce relative to the number of people or number of hours it took to produce it. Rather than simply producing more, productivity reflects our ability to turn inputs into outputs, by working smarter, not harder.
Productivity is extremely important for our economy and society. Productivity growth is what drives higher living standards over the long run. Higher productivity makes businesses more competitive, means they are more resilient to unexpected events, and allows them to pay higher wages. Higher productivity can also mean more money available to fund public services, which is particularly important given the pressures currently faced by Northern Ireland’s public finances.
Despite its importance, Northern Ireland has persistently struggled with low productivity. It has possessed a productivity gap of around 15 to 20% below the UK level over the past decade, and has often been the UK’s worst performing region. This poor performance is long standing, and pre–dates the Troubles and even partition.
At the Northern Ireland Productivity Forum, we have been examining the reasons for this poor performance. The Forum brings together representatives from business, the public sector and academia, to improve our understanding of the productivity problem, and to implement research insights through practical business and policy interventions.
What explains Northern Ireland’s productivity gap? In our insights paper, ‘Northern Ireland’s Productivity Challenge: Exploring the issues‘, we identified seven key explanations:
- The structure of the local economy, and its reliance on low productivity sectors.
- Peripherality, including Northern Ireland’s geography and its distance from networks relating to knowledge and innovation.
- Lower levels of capital and investment.
- Lower levels of human capital.
- A lack of infrastructure creating barriers to growth and investment.
- Policy failures in addressing the productivity gap.
- Constraints associated with institutions and governance.
While the relative importance of each has varied over time, they all remain relevant to explaining today’s productivity gap.
Given the persistence of its underperformance, it would appear surprising that Northern Ireland’s productivity gap reduced to 11% in the most recently published data for 2021. This meant that instead of being the worst performer amongst the UK’s 12 regions, Northern Ireland moved up to 7th.
Breaking down the reasons for this improved performance in the ‘Northern Ireland Productivity Dashboard 2023‘, we found it was predominantly due to Northern Ireland experiencing the largest reduction in hours worked of any UK region between 2019 and 2021. This contributed positively to overall productivity, but was likely a temporary effect related to the Covid–19 pandemic, at a time when restrictions remained in place. This conclusion is supported by looking at Northern Ireland’s performance across 18 productivity drivers, compared to the UK and its regions: 14 of these drivers are red as Northern Ireland performs worse than the UK average, and it is in last place for 6 of these. This means the underlying productivity potential of the local economy continues to lag behind other regions.
Why has policy made so little progress in improving Northern Ireland’s productivity? First, problems have previously been misdiagnosed. For example, during the 1960s and 1970s it was thought that greater investment in capital, specifically machinery, was needed to raise productivity in local manufacturing. Yet even once this ‘capital gap’ was closed by the 1980s, firms in Northern Ireland continued to lag their peers elsewhere, as other shortcomings, such as skills and training, had received less attention.
Second, policy silos have prevented the implementation of joined–up policies to address low productivity. As our dashboard shows, productivity growth is driven by a diverse range of policy areas, from investment in infrastructure, to the health of the workforce. An institutional bias towards thinking in terms of policy silos has been identified as a barrier to implementing policies to improve productivity, as these require coordination across different NI Executive departments.
Third, productivity has rarely been used to evaluate the success of policy interventions. Improving productivity has often been included as an aspiration within economic strategies, but benchmarks for success have focused on outputs, such as the number of jobs created, rather than productivity as a measurable outcome.
Beyond individual policies, what can policymakers therefore do to address Northern Ireland’s poor productivity performance?
First, productivity needs to be a central priority for the NI Executive. The last time a target for increasing productivity was included in a Programme for Government was for 2008–2011. Productivity needs to be included as a main outcome in any future Programme for Government, to provide both a guiding principle around which policy interventions can be designed, and as a clear target to measure success against.
Second, there needs to be greater coordination of policies across government departments to address low productivity. The inclusion of productivity as one of four key objectives set out by the new Economy Minister, Conor Murphy, alongside the re–focus of Invest NI towards raising productivity, is a very welcome and important first step. However, raising productivity is not just an issue for a single department or agency. All government departments have important roles to play in designing and implementing coordinated policies to raise productivity, covering education and infrastructure, through to health and the wellbeing of communities.
Finally, meeting Northern Ireland’s productivity challenge requires commitment to long–term policies from our politicians. Low productivity is a deep–seated problem with multiple causes, and no single policy solution.
Raising productivity will be a long–term project, not the work of a single NI Executive term.
It will require policy interventions to be implemented and funded over several political mandates, if we are to see consistent and sustainable improvements in Northern Ireland’s productivity performance.
Dr David Jordan is a Lecturer in Economics at Queen’s Business School, and a Research Associate at the Northern Ireland Productivity Forum and The Productivity Institute. In February 2024 he was appointed as an independent expert adviser on productivity to the NI Department for the Economy.
