Emerging gaps between the two economies in Ireland

A study undertaken by the Economic and Social Research Institute (ESRI) into the economic performance of the economies on the island of Ireland reveals systematic performance gaps favouring the Republic, write Séamus McGuinness, Research Professor, and Adele Bergin, Associate Research Professor.

A recent study, part of a joint research programme between the Shared Island Unit and the ESRI, compares the economic performance of Ireland (the Republic) and the North. The research uses the latest data to examine a wide range of dimensions including demographics and labour market trends, living standards, economic structures, aspects of the education and health systems, and overall wellbeing.

It is important to note this is not a like-for-like comparison given that the Republic is a national level economy and an EU member state, while the North is a UK regional economy that has much more limited fiscal and policy independence. Nevertheless, the research reveals systematic performance gaps favouring the Republic, many of which have widened in recent years.

Demographics and the labour market

The Republic’s population (5.1 million in Census 2022) is growing faster than the North’s (1.9 million in Census 2021), with higher growth in recent years largely due to strong net migration. The Republic also has a younger age structure, with a lower old-age dependency ratio (population aged 65 and over relative to the population aged 15-64) of 23.1 in 2022, compared to 27.7 in the North.

Labour market participation rates for those aged 16-64 are higher in the Republic than in the North, with the gap widening in recent years. In 2022, the participation rate in the Republic was 76.8 per cent, some 4.4 percentage points higher than the rate in the North. Furthermore, in 2022 the employment rate for those aged 16-64 was 73.3 in the Republic, 3 percentage points above that in the North.

Living standards

Household disposable income (per equivalised household), a reliable measure of living standards that is not distorted by globalisation effects most relevant to the Republic’s economy, was 18.3 per cent higher than in the North in 2018. This data was adjusted for price differences in both jurisdictions and the analysis showed that the gap in income has widened over time. In terms of wages, the data show a positive gap favouring the Republic, with hourly earnings 36 per cent higher than in the North in 2022, after adjusting for price differences.

Trade flows

While Great Britain remains the North’s largest trading partner, there was a decline in trade between the two over the period from 2015 to 2022, particularly marked in the share of services imports. Conversely, recent years have seen an increase in trade activity between the North and the Republic, with the rise in trade flows between the two being particularly pronounced in the North’s goods exports and services imports. It is likely that Brexit has played an important role in determining the changing patterns of trade.

“The research reveals systematic performance gaps favouring the Republic, many of which have widened in recent years.”

Economic structure and taxation

Public sector employment remains higher in the North, accounting for 29.2 per cent of total employment compared to 25.3 per cent in the Republic. Employment in the Republic is more heavily concentrated in the ‘information and communication’ and ‘financial insurance’ sectors, which jointly account for 9.8 per cent of jobs relative to 5.4 per cent in the North.

The Republic’s GNI* per capita is 57 per cent higher than the North’s GDP per capita, reflecting stronger economic growth in the Republic and an indicator of aggregate productivity differences north and south. Labour productivity in the North lagged that of the Republic in eight of 10 sectors in 2021 and across all sectors, average labour productivity in the Republic was over 2.5 times that of the North in both 2015 and 2021, in part reflecting the strong prominence of the multinational sector in the former.

With respect to taxation, residents in the North pay significantly lower personal income tax than those in the Republic (€2,980 versus €6,725 per capita). However, corporate tax receipts per capita in the Republic (€5,760) are over five times those in the North (€1,018), reflecting the dominance of multinationals in the former.

On the spending side, we find that the Republic allocates a higher share of expenditures to health (26.3 per cent versus 17.3 per cent in the North) and education (10.7 per cent versus 9.5 per cent).

Educational attainment

Education enrolment rates are higher in the Republic than the North across all age groups, with large gaps between young people. For instance, enrolment rates among 15–19-year-olds were at 71 per cent in 2022 in the North, some 10 percentage points behind the UK average and 21 percentage points behind the figure for the Republic. The percentage of 15–19-year-olds enrolled in education in the North fell by three percentage points between 2018 and 2022. These figures point to serious barriers to further education access in the North. In 2022, early school leaving in the Republic was 2.7 per cent compared to 10 per cent in the North, with the gap having widened in recent years.

Health

With regards to health, while inpatient and outpatient waiting lists were similar for those waiting between zero and six months for treatment, the rates for longer durations are much higher in the North. In 2024, for instance, there were 86 persons per 1,000 population on waiting lists (inpatient plus outpatient) for more than 18 months in the North compared to an equivalent figure of 12 persons per 1,0000 in the Republic. Furthermore, in 2021, infant mortality rates per 1,000 live births were 2.8 in the Republic, 3.6 for the UK average, and 4.8 in the North.

Life expectancy

Differences in life expectancy tend to reflect cumulative differences in welfare arising from differences in income, education, access to healthcare etcetera. In 2021, life expectancy for children aged below one in the Republic was 82.4 years compared to 80.4 years in the North, and a UK average of 80.7 years. As was the case with many other indicators in our study, the gap in life expectancy has grown over recent years in favour of the Republic.