The Irish Economy Could Lose Euro 34 billion Due to the Tech Sector's Squeeze

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.

FREMONT, CA: According to recent research, the Irish economy could lose about Euro 34 billion in value if its tech sector undergoes a significant shake-up. The Economic and Social Research Institute (ESRI) reported that major technology firms including Meta, Stripe, and Twitter have significantly reduced the number of employees they have both abroad and at their Irish offices. This has raised worries that, following a period of consistent employment growth throughout the pandemic, Ireland's ICT sector is about to undergo a major contraction.

The multinational industry, and technology, in particular, are very valuable contributions to the Irish economy, according to ESRI's most recent quarterly assessment. Ireland's ICT sector had five times the labour productivity of EU equivalents in 2019 and was 3.5 times more productive than Belgium, which was second in Europe only to Ireland in terms of labour productivity.

Based on 2019 data, ESRI projected the outcomes if Irish ICT productivity fell to Belgian levels to assess the effects of a major contraction in this industry on Ireland. In this case, the value added by ICT to the Irish economy would decrease by roughly  Euro 34 billion, or more than 70 per cent, from Euro 46.8 billion to just Euro 12.9 billion.

According to ESRI, Ireland's ICT output began to deviate very considerably from that of other EU nations starting in 2005. Due to notable growth in capital inflows of R&D-related intangible assets, this disparity got worse after 2015. In many cases, the productivity rates are likely to be greater here due to enterprises moving intangible assets to the Irish market, which significantly increases the capital per worker and output per worker rates.

The risk, therefore, is that domestic productivity rates will sharply decline with a proportional loss in output if these assets are shifted to another jurisdiction.

While ESRI concentrated on the dangers to the economy if there were effects on labour productivity, it also stated that there are worries that decreased employment in the ICT industry could have an impact on sectors like income tax or corporation tax revenue. The institute stated that additional study would be necessary to examine those hazards.

The Irish economy relies heavily on these forms of activity, and policymakers must keep working to make Ireland a desirable site for this kind of inward foreign direct investment.