PJ O'ROURKE once quipped that "If government were a product, selling it would be illegal."

Humour aside, last week, an ambitious EU-wide project, EU KLEMS, run by the University of Groningen's growth and development centre, went public with the latest comprehensive database on productivity and economic performance of the EU25 states.

Amongst many other things, the KLEMS data shows that given the low productivity of the public sector, if government services were a market product, selling them would be a sure way to bankrupt any company.

The KLEMS project, financed by the Directorate General Research, is designed to compile comprehensive statistical databases on the economic performance of all of the EU25 states and compare this data with the US.

The main focus of the first report produced by the KLEMS was on comparing productivity growth performance in the EU25 and the US for the period of 1970-2004.

According to the study conclusions, an assertion that Europe is catching up with the US in terms of productivity growth, commonly floated today by the European leaders keen on explaining recent slight improvements in European growth performance, is false. In a downbeat assessment of Europe's productivity record, KLEMS data shows that the EU's gap with the US is large, persistent and widening.

Since 1970, US productivity growth was markedly faster in the areas of internationally traded services, such as wholesale and retail trade, logistical support and distribution services, general business and financial services.

The KLEMS report highlights some differences in productivity growth within the EU15, primarily focusing on larger states, paying little attention to smaller European states, like Ireland. However, looking at the actual data for Ireland reveals some interesting facts.

Compared to all private sectors, public-sector performance in Ireland in terms of labour productivity has been a major disappointment over the last 10 years.

Taking education, health and social services, public administration, defence and social security, overall gross value added per hour of labour has declined between 1995 and 2004 . . . the latest year for which data is available. Between 1995 and 2004, the education, health and social work sectors recorded an eight percent fall in overall labour productivity. Over the same period of time, the public administration sector saw its gross value added per hour of labour drop by two percent. The third lowest productivity growth across all sectors of the Irish economy is recorded for another state-controlled sector:

electricity, gas and water supply, where between 1995 and 2004 value added per employee hour has grown by only nine percent.

This compares extremely unfavourably to all other sectors of our economy. For example, value added per hour of work has grown by 39% in wholesale and retail services, 51% in transport and communications, 120% in overall manufacturing and 152% in pharmaceutical and chemical sectors.

The KLEMS dataset allows us to compare Ireland's productivity growth performance and that of the rest of the EU15. Although Ireland did experience significantly higher productivity growth rates in the 1990s, this advantage over the EU15 has fallen significantly since 2001. Similarly to the EU15 countries, for all years between 1970 and 2004, Ireland recorded only small productivity gains in finance, insurance, real estate and business services, and in hotels and restaurants services . . . all internationally traded services. Only starting with 2001 did Ireland began to experience significant growth in wholesale and retail trade services productivity.

The final point worth exploring relates to the link between productivity growth and wages growth in various sectors of Irish economy.

Using KLEMS data, we can compute the amount of value added per each 1 in hourly wages paid in each sector of the Irish economy.

The results are devastating. All government-controlled sectors with exception of energy generation, yield the lowest returns in terms of value added per each 1 spent on wages. In the health and social work sectors, 1 in wages yielded only 0.928 in value added in 2004 . . . the lowest return to employing workers of all sectors in the Irish economy. In public administration and defence this figure was 1.16 returned to each 1 in wages . . . the second lowest . . . while in education it was 1.268. In contrast, on average, 1 spent on wages in the market economy yielded 2.11 in value added. In the finance and business services sector, this number was 3.74 in value added per 1 in wages.

Effectively, these numbers mean that if public services, like health, were delivered with the same efficiency as the average productivity attained in private sector, Ireland could have had the same quality of health services for approximately 57% less in public expenditure.

Alternatively, our current level spending on health could provide a 127% improvement in overall quality of services if its employees were as productive as an average worker employed in the private sector.

Mapping growth in wages against growth in productivity for Ireland shows that in the private economy sectors, higher wages were associated with higher labour productivity. In public sectors there was no statistically discernable relationship between wages growth and productivity enhancement in health and education. This relationship was negative . . . with higher wages growth being correlated with lower productivity growth . . . in public administration.

Dr Constantin Gurdgiev is an economist and editor of Business & Financemagazine