Convergence in Living Standards in Ireland: The Role of the New Economy

Section 1 of this paper sets out the historical record on convergence. It decomposes the change in GDP per head into the effects of demographic changes and changes in output per person employed. Section 2 describes a small model of the economy with skilled and unskilled labour. This model is used in Section 3 to examine the roles of a range of different factors in driving convergence and in accounting for the relatively rapid increase in output per person employed. Finally, in Section 4 some conclusions are drawn on the likely growth in the capacity output of the economy in the medium term.