Meeting the Productivity Challenge

1. Meeting the Productivity Challenge Jeanette Mair Economic & policy research, CIF 16 January 2019

2. Economic and Fiscal Context 2019

3. Medium Term Construction Prospects:

4. €7.3 billion in capital investment in 2019 bodes well for construction • The amount allocated in 2019 is broadly in line with the overall allocation set out in the National Development Plan, for 2019. • Capital investment in 2019 is 23.6% greater than it was in 2018.

5. Available construction skills • The composition of employment across construction is changing. • This reflects emerging technological developments which are transforming the way in which the sector is innovating into the future. • Companies should be examining not just the traditional roles but look instead at the underlying skills their people have and how to maximise them. • A reduced intake in higher level education due to the recession has led to lower numbers of graduates from construction-related courses entering the labour market, with overall output dropping by 50%. • Ireland is competing for skilled labour within the EEA. • The shortage of construction professionals is a global issue. • The reduced supply of job ready civil & building service engineers is expected to impact as the demand for these skills increases, which in turn will put pressure on wage rate levels and inflation.

6. Productivity in Ireland – CSO 2018

7. “Construction contributed very little to productivity in the years 2000-2016…” • In 2008, with the onset of the recession, labour productivity nationally fell due mainly to a fall in MFP, as workers were laid off and production fell in the economy. • In the period to 2016, Industry (excluding construction) made the largest average contribution to total productivity growth, followed by Information and Communication and Professional, Admin and Support Services. • The only negative contribution to total productivity growth over the period was from the Real Estate sector. • The Construction sector contributed very little to total productivity over the entire period and actually experienced negative labour productivity growth.

8. CSO Productivity Indicators for Construction • Labour productivity: measures output in the economy relative to labour input. It is calculated as GVA (at constant prices) divided by labour hours in the economy.

9. CIF Research:sample issues affecting productivity at the external, industry and firm level At external level: • Increasing project and site complexities • Extensive regulation and cyclical nature of public investment • Problematic design processes (e.g. not enough ECI) At industry level • Bespoke nature of operating environment • Contractual and procurement environment • Fragmented industry structure (both horizontally and vertically) At firm level • Availability of suitable skilled labour at site and supervisory level • Underinvestment in project management basics • Underinvestment in digitization, innovation, and capital • Companies expecting to benefit from a digital transformation need people to bring the plans to life

10. 2019…The drive for innovation * McKinsey & Co. 2018

11. CIF companies have highlighted the following key factors as important variables in overall productivity improvement:

13. Thank you for listening