Thursday, May 1, 2014

The Distribution of Profits in Ireland

At the NERI Labour Market Conference in UCC the presentation from CSO DG, Pádraig Dalton contained the following slide.

Top 50 Enterprises

The data is based on the Business in Ireland 2011 survey published by the CSO.  The detail of what was included or excluded in the figures behind these charts was not provided but the aggregates in the survey are for the ‘Business Economy’, i.e. active enterprises excluding those in direct financial and insurance activities (NACE K).  The “Top 50” were chosen by size of GVA and the same companies are in each chart.

Aggregate turnover for these enterprises in 2011 was €326.1 billion, aggregate GVA was €89.3 billion and, aggregate GOS in these businesses was around €50.6 billion in 2011.

The difference between the €89 billion of GVA and €51 billion of GOS is compensation of employees paid (around €37 billion) and taxes less subsidies on production (around €1 billion). 

Gross Operating Surplus is a measure of the trading profits of companies before allowance is made for interest expenditure (after the FISIM adjustment) and consumption of fixed capital (essentially depreciation).

What is startling from the chart presented by Pádraig Dalton is that just 50 enterprises contributed 61 per cent of the Gross Operating Surplus (trading profits) of companies in Ireland.  These 50 enterprises earned around €31 billion of the overall GOS.

The top 50 had around €36.5 billion of GVA so something around €6 billion of compensation of employees was paid in generating €31 billion of trading profits.  The top 50 enterprises probably have something around 75,000 to 90,000 employees.

The other 190,000 or so enterprises in the country had around €52.5 billion of GVA and from this earned around €20 billion of Gross Operating Surplus meaning around €32 billion went to the compensation of employees to around 0.9 million employees.

Outside of the Top 50, employees get 61 per cent of the GVA created by companies (€32 billion out of €52.5 billion). This appears to be a relatively high labour share (albeit without seeing comparable data for other countries excluding their “Top 50”).  Indeed the CSO say that:

Indigenous Irish-owned enterprises (i.e. excludes foreign multinationals) paid 64.5% of GVA in personnel costs.

The clear question that arises is why are businesses in Ireland apparently so unprofitable?  Six-tenths of the trading profits in the Ireland come from just 50 enterprises most of which are likely to be foreign-owned MNCs.  These companies are not too concerned by the residual remuneration available for their owners from their operations in Ireland.  They are very profitable.

The other 190,000 enterprises in Ireland have €20 billion of Gross Operating Surplus to divide amongst their owners - and also to cover their interest (financing costs) and depreciation charges (capital expenditure) as well.  On average there is just over €100,000 of GOS per enterprise outside the Top 50 but how many enterprises have only one owner?

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