The level and quality of employment together with the distribution of skills is central to productivity. Full employment is possible provided that public policy is directed to this as an overriding priority. When some economists speak of a ‘natural rate of unemployment’ they betray an underlying prejudice – not based on historical evidence – that a particular rate of unemployment is somehow ‘natural’ because it is unavoidable due to reasons of timing in job search or long-term structural industrial change that renders many jobs redundant due to technology, trade, etc. However, for much of the period 1945-1970 many Western European economies recorded exceptionally low rates of unemployment – well below the 5% threshold arbitrarily regarded by some economists as consistent with ‘full employment’.
The Irish labour market experience was and is different. It provides an example of how supply and demand for labour is regulated by cross-country migrant flows. Historically, the UK labour market absorbed excess Irish labour supply during periods of stagnation or depression such as happened in the 1950s or to a lesser extent in the 1980s and in the most recent downturn of 2008-2012. An altogether new development emerged in the second half of the ‘Celtic Tiger’ when excess demand for labour in particular sectors and occupations help drive high levels of inward migration. In spite of high levels of outward migration in the subsequent economic crash the total gross inward flow of migrants remained high compared to what it was before the Celtic Tiger.
The rate of unemployment is defined as the proportion of the total labour force (those at work or available for work and actively seeing work) that is unemployed at a given moment in time. The rate peaked at 17% in 1987 before falling to less than 5% in the early 2000s while it reached 15% in 2012. Were it not for outward migration the rate might have reached something closer to 20% of the labour force in 2012. Thankfully the rate has dropped significantly from its high of 15% in early 2012 to under 9% in recent times. Yet, the rate remains too high and there is ample evidence of significant ‘under-employment’ when part-time and discouraged workers are included in a measure of overall under-employment. One estimate of under-employment published by the CSO shows a figure of 16% of the potential labour force at the end of 2015 down from 26% in early 2012 (that is, the % of the total potential labour force that is unemployed or under-employed but would like to work or work more hours). See Chart 1.
Clearly, this level of under-employment taken together with a large number of involuntary emigrants since 2008 is morally unacceptable and wasteful. The extent of slack in the labour market is still far too large and leaves workers vulnerable were there to be another global shock or domestic downturn – something that is unlikely in the immediate period ahead but not to be ruled out in the coming years.
Turning to a more positive perspective on the statistics an important indicator of employment performance is the total employment rate. This is the proportion of the ‘working age population’ (for convenience defined as persons aged 20-64) that is in employment whether full-time or part-time in a recent week at the time of the survey.
The total employment rate, in the Republic of Ireland, remains below the EU average reflecting a shortfall in female participation (Chart 2). Female participation rose rapidly in the Republic of Ireland throughout the boom years but took a hit during the last recession. It has not recovered since then (Chart 3) in spite of an improved rate for males. The overall rate is still well below that in many other small, open Northern European countries with whom a comparison is appropriate. The reasons for this gap are varied including a lack of affordable and accessible childcare.
The overall employment rate provides a useful summary of the capacity of a society to tackle under-employment as well as provide sufficient resources to meet demand for public services and income in retirement. However, we should be concerned not just about the total employment rate but the quality, intensity and productivity of all employment. Here, the story is mixed with some areas of employment growth lending themselves to precarious, low-paid and under-utilised skilled labour. A sustainable and balanced recovery in employment calls for a careful coordination of social policies to enable men and women to participate in the labour market in ways that makes the best use of skills and contribute to the community. These and many other matters of interest will be discussed at the annual NERI Labour Market Conference in Limerick on 13 th May.