Ireland\'s Productivity Paradox: Extreme Decoupling in the Real Estate Sector

Abstract

This study investigates the phenomenon of productivity–wage decoupling across six major OECD economies—France, Germany, Ireland, Japan, the United Kingdom, and the United States—from 2000 to 2023. Using sectoral data from the OECD Productivity Database, we compute productivity–wage ratios and apply structural break analysis to identify regime shifts in the relationship between gross value added per hour worked (GVAHRS) and labor compensation per hour worked (LCHRS). Ireland emerges as a pronounced outlier, with a cumulative growth gap of 116.8 percentage points between productivity and wage growth—the largest among the economies examined. This divergence is driven substantially by Ireland’s real estate sector, which exhibits an extreme productivity-to-compensation ratio of approximately 17:1, reflecting capital-intensive value creation that disproportionately benefits asset owners rather than workers. In contrast, France demonstrates modest wage–productivity convergence, while the United States shows moderate but persistent decoupling. Structural break tests reveal distinct national trajectories, with breaks aligning closely with property-market cycles and financial crises. The findings underscore how institutional frameworks, sectoral composition, and asset-price dynamics mediate the distribution of productivity gains, with implications for inequality, aggregate demand, and economic policy in advanced economies. Structural break analysis identifies regime shifts aligned with financial crises, while Granger causality tests find no evidence that productivity growth predicts wage growth or vice versa.

Introduction

The study examines the relationship between labor productivity growth and real wage growth, a core concept in economic theory that assumes workers’ compensation should rise in line with their productivity. While classical models predict a close alignment, empirical evidence since the 1980s indicates a growing divergence—termed "the great decoupling"—particularly in advanced economies. This decoupling exacerbates economic inequality, weakens social cohesion, and can suppress aggregate demand, potentially contributing to stagnation.

Despite extensive research, gaps remain in cross-country comparisons, sector-level analyses, and the temporal dynamics of decoupling. This study addresses these gaps by analyzing six major OECD economies (France, Germany, Ireland, Japan, the UK, and the US) from 2000–2023 using OECD sectoral productivity and wage data. Key findings highlight that institutional frameworks influence the extent of decoupling, with Anglo-Saxon economies exhibiting stronger divergence, and Ireland’s real estate sector significantly driving national trends.

The theoretical foundation rests on neoclassical growth theory, which links wages to marginal productivity. However, real-world deviations occur due to imperfect competition, bargaining processes, and institutional factors, explaining the observed productivity-wage gaps.

References

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Copyright

Copyright © 2025 Amey Pingale, Sanket Gharat. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.