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Wages and jobs: a lost decade in four charts

Posted on November 30, 2018

How do we know that matters are improving in the economy? Answer: when attendances at Central Statistics Office in the Republic launches of new economic data are down on what they were a few years ago in the deepest of recessions!  Such was an occasion recently at the launch of the Labour Force Survey in Dublin. This was followed, as it normally is, by a less trumpeted online launch of recent quarterly labour market earnings data.  A number of salient facts stand out from the detail of these releases:

  • Employment in the Republic continues to rise at a very healthy rate of 3% per annum;
  • Average weekly earnings in the Republic are increasing at a rate of about 2.5% per annum in real terms since the same time last year.

Add to these labour market trends North of the border and we get a less rosy picture:

  • Employment increased by around 1% in the year ending September of this year. See data source here.
  • Real average (median) weekly earnings for all workers increased by around 1.5% per annum in the year up to last April. See data source here.

Nothing to write home about, as the saying goes.

For the Republic, there is good and welcome news, especially when we remember the gloom in December 2010 when the unemployment rate hit 15.8% just as the Troika were arriving in town. The rate was down to 5.5% last month. Even still, many experience under-employment or unemployment especially among particular age-groups, ethnic minorities and those living in disadvantaged regions. 

The picture in Northern Ireland is less rosy but encouraging to the extent that, up to now at least, Brexit has not tipped the UK or its constituent parts into recession. All of that could change quickly and decisively as we enter the new year. The Republic of Ireland is not immune from adverse shocks either – perhaps even more exposed as a result of a downturn in the USA as much as from Brexit-related factors.

One way of tracking employment developments is to use the Employment Rate which is defined, here, as the proportion of the total population aged 20-64 in paid employment according to the Labour Force Survey. Eurostat data sources enables us to break the data down by broad ‘NUT2’ region (2013 classifications) – Northern Ireland, BMW (Borders, Midland and Western regions) and SE (Southern and Eastern). In the Republic of Ireland employment rates have recovered some, but not all, of the ground lost during the recession of 2008-2012.  (Chart 1).  Northern Ireland shows a remarkably stable overall rate of employment throughout the whole period. Insulated to some extent by UK specific factors including fiscal and monetary policies especially in the early half of the recession, rates of employment are lower than those in Great Britain.

At European level, both parts of Ireland still lag a number of Northern and Central European economies. As a general rule, I prefer to compare Ireland (both parts) with such economies due to reasons of geography, EU membership and overall level of prosperity and standard of living.

Chart 2 shows that both parts of Ireland have average overall employment rates but are significantly below those in other parts of Northern Europe including the UK as a whole.

The picture with regards to earnings in the Republic (Chart 3) suggests that wages – on average – have recovered only very slowly. As of the third quarter of this year the real value of average weekly earnings was a fraction below the level it was at in 2009 when they were at a peak (thanks in part to the impact of price deflation in the measure for that year).  Talk of runaway wage inflation or ‘soaring wages’ are misplaced and misleading. Some sectors are showing relatively fast growth reflecting skill shortages and demand in those sectors while other sectors show a different pattern.

The evolution in real average earnings in Northern Ireland is not dissimilar to that of the Republic (Chart 4). The big difference is price inflation where faster rates of growth in nominal wages have been offset of generally higher rates of price inflation in the UK. The result is that average real earnings have hardly budged in Northern Ireland over the last decade.

So, the story is that employment rates are almost back up to where they were a decade ago. Likewise, for real average earnings. The outcome is not much different in this regard in both parts of Ireland.

Here is the conundrum: with GDP, GNI, GNI*, consumption and average household income increasing where is the extra value going? Wages are trailing and households are managing to increase consumption through other sources. There lies a story for another day.

None of the positive news on employment should be taken to suggest that the composition and nature of new employment are without problems. There are areas of insecurity, low pay and under-utilisation of skills. We need to be as concerned about the quality of employment as its quantity. Still, it is very welcome that unemployment is as low as it is. At least for now.

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