Quarterly Economic Observer - Spring 2019
This edition of the NERI’s Quarterly Economic Observer (QEO) outlines our latest expectations for the economic outlook in the Republic of Ireland and Northern Ireland (Section 1) and examines automation technologies and the future of work in Northern Ireland (Section 2).
Economic outlook for Northern Ireland
- Northern Ireland’s economy looks likely to have enjoyed a slightly better year in 2018 than in 2017. On closer inspection, however, there is cause for concern relating to both growth in output and the labour market.
- While output growth recovered a little from events such as the sharp contraction of Manufacturing output in 2017, growth has lost momentum. A slowdown in the Retail and Hospitality sector is the main concern over the medium term.
- There has been strong growth in employment, but a worrying trend in the nature of some of the new employment. Over the course of 2018 the number of full-time jobs increased by 3,000, only, while there was an increase of 22,000 in the number of part-time workers and a 10,000 increase in temporary workers.
- While Brexit continues to exert uncertainty over the outlook in the short and medium term, reductions in public expenditure also weigh heavily on the outlook for the Northern Ireland economy.
Economic Outlook for the Republic of Ireland
- Real GDP grew by a very robust 7.4 per cent annually in the first nine months of 2018. The Republic’s cyclical upswing is continuing, and there is, as of yet, limited evidence of overheating in the economy. However, the activities of a small number of large multinationals continue to distort these figures.
- Manufacturing and Services PMIs, while still positive, are on a downward trend. The bulk of real GDP growth in 2019 and 2020 will come from domestic demand, with only a minor role for net exports.
- Labour market performance, while improving, is merely average by EU standards. Fourteen EU countries had lower unemployment rates than the Republic in December, while the Republic’s employment rate was marginally below the EU average.
Automation technologies and the future of work in Northern Ireland
- Recent rapid advances in artificial intelligence (AI), robotics and other forms of smart technologies have led to widespread concern about the potential impact of automation technologies for the future of work.
- We use the task-based approach to estimate the impact of automation for the Northern Ireland labour market. This produces lower estimates of negative job impact than similar studies, which have used the occupation-based We argue that our methodology produces a more realistic appraisal of the risk of job loss.
- We estimate that around 7 per cent or 60,000 jobs are at high risk of job loss from automation technologies. In addition, we estimate a further 58 per cent of jobs are estimated as being at risk of substantial change in the tasks involved.
- We estimate that 13 per cent of workers are employed in jobs classified as being at low-risk from automation technologies. The principal job tasks for these workers comprise functions described as ‘engineering bottlenecks’ in that they are non-substitutable by machines.
- Over 1 in 4 of those in the distribution, hotels and restaurant sector are at high risk of automation (26.8 per cent). A further 46 per cent of workers in this sector are at mid-to-high risk of automation. The lowest automation risk is found in the Public Administration, Education and Health sectors.
- The risk of automation is particularly elevated among low-skilled workers with 34 per cent of workers at high risk. A further 48 per cent are at risk of substantial change in the task structure of their job. Almost 40 per cent of middle-skilled workers face substantial change in the task structure of their job, as some tasks become substitutable by machines.
- Despite a significant number of workers facing a high risk of job loss owing to automation technologies, we anticipate that there will be enough new jobs created to replace lost jobs.
- However, the new jobs created are not in many cases comparable to those lost, and to think of them as replacement jobs can be quite misleading. New jobs are more likely to be in different occupations to the jobs that are lost, but more importantly, they also differ in quality to the jobs that were replaced.
- There has been a polarisation in terms of the occupational structure, with growth concentrated at one end in non-routine abstract/cognitive, high skilled occupations such as engineers and at the other end in non-routine service occupations such as caring and leisure occupations. The evidence suggests a similar polarisation in the quality of jobs.
- Those in non-routine service occupations tend to have relatively poor earnings. These results stay constant whether we examine the quality of earnings via hourly pay, gross weekly pay or annual pay, with those in non-routine abstract occupations tending to be relatively much better paid.
- Workers in non-routine service occupations also appear to be unsatisfied with their job and have little autonomy or flexibility over their work. Thus, the quality of the working environment of these workers is much lower than that of other workers. This is of key concern given that these jobs are among the least likely to be displaced owing to automation technologies.
- Technological change is necessary for productivity growth and it is a key determinant of improved living standards. Automation technologies also have the capacity to improve dramatically the working environment and conditions for many workers.
- However, this does not detract from the fact that for a sizeable number of workers, automation technologies may lead to job loss or a negative job change in terms of the quality of employment. Policy action is needed to improve the quality of ‘bad’ jobs to ensure that workers in certain occupations or sectors do not lose out.
- We argue the need to strengthen labour market institutions, and in particular the importance of unionisation and collective bargaining capacity as a way to hedge against the risks of negative displacement or deterioration in job quality due to automation technologies.
- Furthermore, we argue for the introduction of a new occupational infrastructure in low-skilled sectors of the economy in order to rebuild good quality jobs. This will require a social dialogue between Government, employers and trade unions to ensure that technological advances benefit all.