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Quarterly Economic Observer - Winter 2013

Quarterly Economic Observer - Winter 2013

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Summary

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 3). It also presents an analysis of recent developments in the Republic of Ireland’s labour market in particular focusing on the changes to employment patterns since the recession alongside the distribution of earnings (Section 4).

Economic Outlook

Our economic outlook for both parts of the island of Ireland is positive but cautious.

In the Republic, we anticipate small but positive economic growth in 2014 although concerns remains regarding the impact of contractionary fiscal measures in Budget 2014, a weakening outlook for our export markets, continuing high long-term unemployment, the continuing overhang of personal debt and the impact of changes in the pharmaceutical sector.

In the North, there are some positive economic signals, reflecting recent developments in the UK economy as a whole, although these positive trends are recent and at this stage any recovery is at best fragile.

Based on the assumptions and expectations outlined Section 3, our current projections for the Republic of Ireland include:

-        Sluggish growth in 2013 and 2014, at 0.5% and 1.1% respectively; growth rates which are dragged down by approximately 0.5% of GDP in each year given the contraction of the pharmaceutical sector.

-        Without the pharma-sector impact, we anticipate growth would still be relatively low given the impact of contractionary fiscal policies. As the impact of the pharma-sector’s contraction fades, we anticipate a return to higher growth levels of 1.8% in 2015 and 3% in 2016.

-        In 2013 we expect the year to record a notable increase of 2.3% in employment; an increase that we anticipate is partially related to the re-emergence of activity in a number of labour intensive industries (e.g. accommodation and food; tourism).

-        We anticipate that increases in growth, investment and the slow recovery in personal consumption will drive further employment growth out to 2016 with rates of +1.1% in 2014, 1.2% in 2015 rising to 1.5% in 2016.

-        Driven by job creation, increases to training places and emigration, we expect the rate of unemployment to fall to an average of 13.1% for this year (2013). We expect a continued steady decline in the unemployment rate out to 2016 when we expect the rate to be 10.4%. High structural unemployment remains a core problem.

-        While we anticipate some increases in investment in the economy, we believe that there remains potential for this area of economic activity to increase further if Government and other agencies begin to make use of the recently established Ireland Strategic Investment Funds (ISIF) within the auspices of the National Pension Reserve Fund (NPRF). It remains a regret that these funds have not be leveraged to support a stimulus to the weak domestic economy.

-        The improvements in the labour market impact positively on exchequer finances with the General Government Deficit falling to 4.8% in 2014, reaching 3.1% in 2015 and 2.6% in 2016.

Trends and prospects for the Republic of Ireland’s labour market

In section 4 of this Observer we look at the nature of the Republic of Ireland’s labour market since the recession and find:

-        Despite the large falls in employment since 2008, hourly wages have remained stable.

-        20.7% of workers are classified by the EU as low paid (with the cut-off point being €12.20 per hour).

-        The low paid also generally work fewer hours per week, although they wish to work more.

In this edition we focus on how recent Irish labour market trends fit a global pattern:

-        Globally there has been a ‘polarisation’ of the labour market with middle paying jobs being hollowed out.

-        The construction boom masked this underlying trend in Ireland.

-        During the recession managerial, professional, and technical jobs showed employment increases, while middle paying craft and secretarial jobs showed decreases.

-        There is a need to both retrain unemployed former construction workers and also prepare administrative workers in employment for future changes in the labour market.

-        As a domestic led recovery is unlikely, over the coming years it is probable that there will be a continued expansion of employment for the higher paid, stagnation or declines for those in middle paying occupations, and the fate of the lower paid will depend on a trickle down from those in higher paying jobs.

-        Such an outlook underscores the need for policy to focus on initiatives such as:

  •  in-work training;
  • methods of protecting and improving over time the living standards of low paid workers such as a ‘living wage’; and
  • the retention and strengthening of a progressive income taxation system.

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