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Good news for a change - but now is the time to invest

Posted on September 04, 2015 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

At the end of August the Central Statistics Office in the Republic of Ireland published three timely and telling statistical releases: the Earnings, Hours and Employment Costs Survey (EHECS), the Quarterly National Household Survey (QNHS) and the Annual Population and Migration Estimates.  QHNS provides data on the numbers in employment while EHECS provides data on earnings from employment by employees. The latter two surveys, taken together, provide a useful snapshot of recent trends in the labour market while the annual population estimates track changes in population by key groups broken down into flows of migration, births and deaths. 

The labour market data indicate a gradual recovery both in the level of employment as well as the level of earnings for those in employment. However, the pattern is uneven across the country as well as different sectors and sub-groups.

First, the overall picture shows a sustained recovery in earnings as measured by ‘average weekly earnings’ for all employees in the non-agricultural part of the economy (Chart 1). Following a period of falling prices in 2008/2009 and a recovery in prices in 2010/2011 the overall level of prices has been remarkably constant since 2012 (the last time consumer prices fell in the 26 counties was in 1944-45 and before that 1929-1932).  Given the relative stability in average prices a modest recovery in wages which commenced in the second quarter of 2014 has triggered a modest recovery in average real wages since then with a slight dip in the second quarter of 2015.

But, averages are only averages.

Behind the average there is a continuing gap in wage performance. The Information and Technology sector has seen an average wage growth of just over 4% in the 12 months ending June 2015 while the employees in the accommodation and food sector have seen a small decrease over the same period. Digging deeper into the statistics reveals that ‘clerical, sales and service employees’ have shown a fall of just below 4% in weekly earnings in the 12 months ending March 2015 while ‘managers, professionals and associated professionals’ have recorded an increase of 1.5% over the same period.

A highly telling trend – over the five years from the depths of recession in early 2010 to the early indications of green shoots in labour market earnings in early 2015 – wages in the ‘Information and Technology’ sector grew by 17%. In the ‘Human Health and social work’ sector (reflecting public sector pay cuts) wages fell by 7% over the same period. Sectors in which employees took the biggest hit in terms of earnings included health, education, public administration, scientific and technical activities and construction.

Reflecting a relatively strong demand for workers in the IT sector as well as particular occupational groups the CSO estimate of job vacancies was highest in the IT sector at 2.8% in the second quarter of 2015 while it was lowest in ‘transportation and storage’.

Chart 1 Trends in average weekly earnings

 

Source: EHECS

Turning to employment trends (source QNHS) the news is very positive but with important variations behind the averages and overall totals.  Total employment is estimated to be just 36,000 shy of two million in the second quarter of 2015.  This represents a solid recovery in overall employment since the low point of 2012. A combination of net outward migration but, also, strong employment growth since then has helped boost overall employment numbers. Of an overall increase of 57,900 in employment in the 12 months ending June 2015 one third of this – 19,600 was in the construction sector. While there has been a welcome and sharp recovery in construction employment it is still below what it was in 2010 and probably needs to reach a level closer to 200,000 (but not quarter of a million as happened in 2006-2008).

Annual housing output is woefully inadequate relative to demographic and local demand pressures. Moreover, there is a need for a systematic roll-out of deep ‘retrofitting’ adaptation of buildings to lower Ireland’s increase energy efficiency and cut energy costs in the long-run. This is in addition to the need for investment in social housing, community health facilities, early childhood facilities and schools in areas of growing population.

 Chart 2 Trends in total employment (including self-employed)

 

source: QNHS

 The regional spread of employment increases is a topic of keen local (and national) political interest. The headline results show that the most recent recovery (since 2012) has been unevenly spread but with indications that all regions are sharing in the employment recovery – some more than others. Chart 3 shows that all regions took a big hit over the whole period 2008-2015 with the Border, West and South East showing the biggest falls (refer to green bars in the chart).  Since the recovery began in 2012 all regions have seen increases but the West and the Mid-West have recorded smaller % increases (2.1 and 1.5% respectively – refer to red bars).

Finally, in the last 12 months when overall employment increased by 3%, the West and Mid-West have caught up with the overall average showing increases of 2.8 and 2.9%, respectively. While Dublin took less of a hit for the overall employment decline in 2008-2015 its recovery has been strong but not hugely in excess of the overall average recovery pattern. Employment increases since early 2014 have been a little less, in Dublin, compared to the rest of the country. The evidence, while tentative and partial, suggest that after an initial lag the recovery in employment is spreading to the ‘regions’. This is not to deny that fact that high levels of unemployment and underemployment continue to blight many rural areas and towns and that the locomotive of recovery will not be sufficient on its own to pull these areas back up to where they need to be. Regional economic policy along with investment needs is still a key challenge.

 Chart 3 Percentage changes in total employment by region (2008-2015)

 

Source: QNHS

Population estimates released by the CSO confirm a consistent growth in population over time including the recession years. Notwithstanding large net outward migration since 2010, especially among younger people, total population has increased to reach an estimated 4,635,400 in April 2015. This implies an overall growth of nearly 6% since April 2007 – a year before the onset of recession. 

Chart 4 Total population (millions in the Republic of Ireland), 1950-2015

 

Given a sharp increase in inward migration in the 12 months ending April 2015 and a small fall in outward migration the number of migrants entering the State is 23,000 less than those leaving. Given continuing favourable trends in employment, here, it is likely that net outward migration will be much less up to next April possibly showing a resumption of net inward migration in the course of next year. This is a positive development compared to where the labour market and population were in 2009-2012. However, a growing population combined with a growing crisis in housing and accommodation as well as a process of ‘ageing’ in the population will put considerable additional pressure on public social spending – especially in the areas of health, education and pensions.

Now is the time to invest.

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