Quarterly Economic Observer - Winter 2019 - "Matching skills needs with skills reserves: Protecting workers and communities for a Just Transition"

just transition

This edition of the NERI’s Quarterly Economic Observer (QEO) outlines our latest expectations for the economies of the Republic of Ireland and Northern Ireland (Section 1) and looks at labour market issues related to the Just Transition (Section 2).

Economic Outlook for the Republic of Ireland

  • The short-term outlook for the Republic of Ireland economy is reasonably positive. We project real GDP growth will be 5.8% in 2019 before falling to 3.3% in 2020 and 3.1% in 2021. Crucially, this assumes that the UK and the EU will negotiate a withdrawal deal for their post-Brexit relationship.
  • Labour market conditions will continue to improve in most sectors. This will increase the bargaining power of workers. While employment growth will slow from its current unsustainable levels, it will remain robust by historical standards – net employment should increase by close to 40,000 over the next year.
  • As such, the unemployment rate should continue to fall, albeit at a much slower pace than in recent years. We expect real average hourly wages to grow by in excess of 2 per cent annually in 2020 and in 2021.

 

Economic Outlook for Northern Ireland

  • There is a mixed picture for the Northern Ireland economy as the end of 2019 approaches. Output data available for the first part of the year indicates solid but unimpressive growth rates across most sectors. More up to date measures of business sentiment indicate that the uncertainty surrounding the UK’s exit from the EU began to bite after the extension of negotiations in March.
  • Conditions in the labour market remain relatively benign and have been bolstered by wage increases in 2019 but here again there are concerns regarding particular groups and employees.

 

Macroeconomic performance & projections, Republic of Ireland[1]

 

2018

2018

2019

2020

2021

 

Real Output

 

Percentage real change over previous year

 

Gross Domestic Product

€321.4bn

8.2

5.8

3.3

3.1

 

 

 

 

 

 

 

 

Personal Consumption

€105.1bn

3.4

2.7

2.6

2.5

 

Government Consumption

€30.9bn

4.4

4.9

4.0

4.0

 

Investment

€73.6bn

-21.1

45.0

0.5

3.6

 

Exports

€397.1bn

10.4

10.8

4.9

3.3

 

Imports

€285.6bn

-2.9

20.3

4.3

3.4

 

 

 

 

 

 

 

 

Earnings

 

Percentage nominal change over previous year

 

Average Hourly Earnings

€23.07

2.9

3.6

3.9

4.1

 

 

 

 

 

Government Finances

 

Percentage of GDP

 

General Government Balance

€0.2bn

0.1

0.2

0.2

0.3

 

Gross Debt

€206.0bn

63.6

59.2

54.0

53.0

 

 

 

 

 

 

 

 

Labour Force

 

Percentage change over previous year

 

Employment

2,257,550

2.8

2.6

1.7

1.4

 

 

 

Percentage of labour force

 

Unemployment

137,400

5.8

5.0

4.6

4.5

 

 

Matching skills needs with skills reserves: Protecting workers and communities for a Just Transition

  • The Republic of Ireland is a laggard on many indicators of sustainability, including carbon emissions linked to anthropogenic climate change. Persisting with Ireland’s current policy path risks significant fines in the short term, and contributing to global climate breakdown in the medium to longer term.
  • The principles of a ‘Just Transition’ state that workers and communities at-risk from the transition should not disproportionately shoulder the burden of adjustment. Therefore, Governments should enact measures to support workers to find decent work in new green industries, and measures to protect communities reliant on employment facing obsolescence. Given appropriate demand-side policy, the transition could represent a major economic opportunity for Ireland.
  • The brunt of transition will likely occur where emissions are currently most concentrated. In our analysis, we identify six sectors, which together contribute nearly 88% of emissions, but less than 9% of aggregate employment. Regional data suggests a disproportionate share of aggregate employment and employment growth outside Dublin in recent years has been in carbon intensive sectors, particularly in the Midlands and South West.
  • The green transition will have implications for skills needs across the economy. Green skills are hard to define but studies suggest that a transition will prioritise skills related to the sciences, engineering and management.
  • We find evidence of structural mismatch in the Irish economy’s skills base including over-qualification, horizontal mismatch and, among the potential labour force, underutilised skills. The data also point to possible labour market risks for workers in at risk sectors in the absence of policy intervention. Consistent underinvestment in in-job training and higher education is likely to be compounding this problem.
  • In the short-term, to realise sustainable and spatial development goals, government should deploy or redeploy individuals with existing skillsets that are not fully utilised using active labour market policies and an appropriately designed programme of public investment.
  • International experience suggests that successful transitions involve agreed timelines between trade unions, employers and communities with government at various levels. This ensures political feasibility and, in the latter implementation phases, policy that is tailored to regional needs.
  • Long term planning alongside communities and worker representatives should enable employment wind-downs where jobs are no longer tenable, limiting dislocation for workers and regions. Planning should incorporate a proactive approach to possible losses, upskilling workers and ensuring investment is forthcoming for regional development away from carbon intensive sectors. Institutions in other States may offer a template here, with examples of high rates of job placement and social protections that reduce the negative impacts of redundancies.
  • In the Irish context, we suggest a framework that incorporates high-level direction and aggregate planning with local participation by affected actors. The former entails binding targets commensurate with the latest science at the EU and national levels. Local participation in planning and feedback into policy implementation overcome obstacles to adjustment and avoid the pitfalls of one-size fits all policy in varied circumstances.
  • Finally, addressing the endemic shortfalls in social insurance payments in Ireland could provide resources for more comprehensive social protections to minimise worker and regional dislocation and fund upskilling.

[1] Assumes a soft-Brexit outcome with a transition period until end-2020.

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