Irish SME Productivity Lags 20% Behind European Peers as Nevin Institute Calls for Urgent Action
Research presented at the Nevin Economic Research Institute has found that productivity in Ireland's domestic small and medium enterprises lags nearly 20% behind comparable European economies, with construction and financial services among the worst-performing sectors — a structural weakness that experts warn could undermine Ireland's long-term economic competitiveness if left unaddressed.
Background
Ireland's economic performance over the past decade has been dominated by the extraordinary contribution of multinational corporations, whose presence has generated enormous tax revenues, created high-quality employment, and driven headline GDP figures to levels that bear little relationship to the lived experience of most Irish people. The gap between the performance of foreign-owned multinationals and indigenous Irish businesses is one of the most striking features of the Irish economy, and it has been a source of concern for economists and policymakers for many years.
The Nevin Economic Research Institute (NERI) is an independent economic research body associated with the Irish Congress of Trade Unions. Its research focuses on issues of economic and social policy, with a particular emphasis on the labour market, public services, and the distribution of economic gains. The institute's work on SME productivity is part of a broader research programme examining the structural characteristics of the Irish economy and the policy interventions required to improve its long-term performance.
Productivity — the output generated per unit of input, typically measured as output per worker or output per hour worked — is a fundamental driver of long-term economic growth and living standards. Countries with high productivity levels can sustain higher wages, better public services, and greater economic resilience than those with lower productivity, and the gap between Ireland's domestic SME sector and its European peers represents a significant drag on the country's long-term economic potential.
Key Developments
The NERI research, presented at a conference in Dublin this week, found that productivity in Ireland's domestic SME sector is approximately 19% below the average of comparable European economies. The gap is particularly pronounced in construction, where Irish firms lag significantly behind their counterparts in Germany, the Netherlands, and the Nordic countries, and in financial services, where the dominance of large multinational banks and insurance companies has crowded out the development of a competitive indigenous sector.
The research identifies several factors contributing to the productivity gap, including underinvestment in research and development, inadequate management training and skills development, limited adoption of digital technologies, and a fragmented approach to sectoral planning that has prevented the development of the kind of industry clusters that have driven productivity growth in other European economies.
Experts presenting the research called for a range of policy interventions, including improved use of the National Training Fund — which currently accumulates a significant surplus — to support management development and skills training in SMEs, increased investment in R&D through Enterprise Ireland and other state agencies, and a more strategic approach to sectoral planning that identifies and supports the development of high-productivity clusters in areas where Ireland has genuine competitive advantages.
Why It Matters
The productivity gap between Ireland's domestic SME sector and its European peers matters for several reasons. In the short term, it means that Irish workers in indigenous businesses earn less and have fewer opportunities for advancement than their counterparts in more productive economies. In the medium term, it creates a structural vulnerability in the Irish economy: if the multinational sector were to contract — due to changes in global tax policy, shifts in investment patterns, or other factors — the domestic SME sector would be poorly positioned to absorb the shock. In the long term, the productivity gap undermines Ireland's ability to sustain the high levels of public investment in housing, health, and infrastructure that are required to maintain living standards and social cohesion. Closing the gap is not a quick fix — it requires sustained investment and policy commitment over many years — but the NERI research makes clear that the cost of inaction is high.
Local Impact
The productivity gap affects businesses and workers across Ireland, but its impact is felt most acutely in regions where the multinational sector is less dominant and the domestic SME sector carries a larger share of the economic burden. In the west and northwest of Ireland — including counties like Mayo, Roscommon, Leitrim, and Donegal — indigenous SMEs are the primary source of private sector employment, and their productivity performance has a direct impact on wages, job quality, and economic opportunity in these communities. Enterprise Ireland, which supports indigenous Irish businesses, has indicated that it is aware of the productivity challenge and is working with its client companies to address it through a range of programmes focused on management development, digital adoption, and R&D investment.
What's Next
The NERI research will be submitted to the Department of Enterprise, Trade and Employment as part of the pre-budget consultation process. The department is expected to consider the findings in the context of Budget 2027, which will include decisions about the allocation of the National Training Fund surplus and the level of funding for Enterprise Ireland and other business support agencies. The Oireachtas Enterprise Committee has indicated that it will hold hearings on SME productivity in the autumn, with the NERI and other research bodies expected to present evidence.
