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Youth labour market still in recession

Posted on August 30, 2014 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

The week gone by brought some mixed news in regards to wages and employment trends in the Republic of Ireland.  The recovery in total estimated employment from about the end of 2012 has continued into 2014 but at a much reduced pace. At the same time, wages are dropping slightly on average (before account is taken of taxes and social transfers). And the estimated numbers emigrating are significantly down. The bottom line is that there are more people at work, wages are stagnating if not declining while fewer people are leaving to look for work abroad. These are the key points. In next week’s blog I will look at some recent wage trends while, this week, the focus is on the some aspects of employment trends that have received relatively little public attention so far.

Employment is up but only just ….

Chart 1 shows a sharp deceleration in employment growth in the first half of 2014. Estimated employment growth was running at over 15,000 per quarter for most of 2013 whereas it is down to about 2,500 on average since the beginning of the year. Were this trend to continue for the remaining half of 2014 overall employment would be up by only 10,000 on a total number of 1.9 million at work. These are round figures and like all survey-based estimates are subject to revision and change. Indeed, pleasant surprise and puzzlement was a reaction to the large employment gains in the course of 2013. Notwithstanding a note of caution in regards to agricultural employment estimates in the CSO Quarterly National Household Survey release some were jubilant to claim that the labour market was recovering rapidly and that so many jobs were being created on average each week. The estimates for the first half of this year must surely throw a garment of caution over such positivity – a point noted by UNITE economist Michael Taft on Notes on the Front . It is not beyond the bounds of statistical possibility that estimates of growth in 2013 were on the high side while estimates for the first six months of 2014 are on the low side. Time will tell.

 

While the proportion of people at work is slightly down….

What is clear is that overall employment is up but it may not be increasing as rapidly as one would like it to be and as it needs to be to drive a recovery in domestic demand which is still flat.  While employment numbers are an important indicator of progress it is useful to consider the ‘Employment Rate’. The Employment Rate is the proportion of persons aged between 20 and 64 (the so-called working age population) who are in paid employment. It takes account of two factors and brings them together in one single measure: (i) the proportion of people available for work and (ii) the proportion of (i) who actually have work.  When unemployment is high this pushes down the Employment Rate, other things constant. When more people enter the labour force for a given level of unemployment the higher the Employment Rate.

The average across the European Union for the Employment Rate was 68% in the first quarter of 2014 while it was 66% in the Republic of Ireland. The policy target agreed with the Member States is to raise the average EU rate to 75% by the year 2020. Some Member States, notably Sweden, Germany, the United Kingdom and the Netherlands were over the 75% mark. High employment rates say nothing about the quality, ‘decency’ or durability and intensity of work (full-time/part-time). However, they do provide a useful overall indicator of the extent to which the ‘working age population’ is economically active as in paid employment. This provides the basis for moving towards full employment and society where people are able to provide for themselves throughout their working lives and beyond as well as for those who cannot work for one reason or another.

 

The good news is that the Employment Rate has been edging upwards since the beginning of 2012. It should be noted that the recession hit Ireland particularly severely with a sharp and sudden drop in employment rates in 2008 and 2009 reversing significant progress that was made in the previous 20 years. Since 2010 the Employment Rate has been significantly below the average EU28 rate (the un-weighted average of all 28 Member States).  Chart 3 indicates progress since 2012 but it also indicates that in the first half of 2014 the Employment Rate has stopped rising and even fell. Although official estimates are not provided for the second quarter of 2014 it is likely that it dipped under 66%. This is worrying for two reasons:

  • The pace of jobs recovery may have run out of steam just when we thought that we were looking at a ‘growthless job recovery’ (in contrast to the previously more familiar ‘jobless recovery in GDP’ that is observed in previous recessions).
  • The pace of recovery is not sufficient to reduce unemployment quickly enough to avoid what some economists call ‘hysteresis’ a raising of the unemployment rate beyond which wages or prices start increasingly significantly (and currently there is no indication of wage or price inflation in nearly all of the EU).  More significantly ‘hysteresis’ may spell a period of prolonged exclusion from meaningful employment and work experience-rich training opportunities.

 

 

But lack of employment and quality training/experience opportunities among vulnerable youth is a huge policy challenge

One group particularly vulnerable to ‘hysteresis’ are young people who are shut out from labour market opportunities and quality employment conditions. The recession took a heavy toll on youth employment. While the rate of youth unemployment is falling since 2012 it is still much too high. A particular sub-group in the youth population are those who are ‘not in employment, education or training’ (NEETs). An indicator of social exclusion among young people is shown by the CSO in its online ‘supplementary’ data tables. That indicator deserves much more public attention and urgent and comprehensive policy response. It is Table S9 which can be found online here . The Table shows the employment/non-employment situation of persons aged between 18 and 24. It distinguishes between those who have ‘left school early’ as measured by those without a Leaving Certificate (or equivalent) and who were not in education or training in the four weeks prior to being interviewed for the Quarterly National Household Survey.

The latest Eurostat data show that, in 2013, the rate was one in five of all young persons between 18 and 24 (it was one in four in the Border, Midlands and Western part of the Republic of Ireland according to Eurostat data here .). The NEET rate in the Republic was the 8 th highest in the EU in 2013. Focussing on the population of early leavers (18-24 year olds) the Employment Rate (comparable to the overall rate of 66% in Chart 2 above) was 21% in Q1 and 25% in Q2. While these estimates are subject to sampling error they indicate a lower Employment Rate than any time since the start of the recession in 2008.

Early school leavers not in ‘employment, education or training’ are extremely vulnerable to poverty, homelessness, poor quality employment and exploitation. This is something that no society should tolerate. Measures to address this problem by way of a ‘Youth Guarantee’ are most welcome. However, it does not appear that the scale of ambition, the level of investment, the comprehensiveness of its reach and the quality of its content by way of training experience has been adequate to address the matter.

Posted in: Jobs

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