Inward migration ‘critical’ to sustaining growth – Central Bank report

Net inward migration will be the most important source of new employees if the economy continues to grow at the rates seen over the past number of years, according to a new study.

The report suggests inward migration will be critical in ensuring that growth is not impeded by labour supply constraints.

However, the Central Bank of Ireland study warns the Republic is unlikely to see levels of migration similar to those witnessed in the mid-2000s and will face a battle with other countries to secure talent. Furthermore, employers won't benefit from paying lower wages to migrants as many did during the Celtic Tiger years.

The accession of 10 eastern European countries to the EU between 2004 and 2007 led to a sharp spike in the number of migrants in the Republic. That helped sustain growth during the tail-end of the boom. But while EU accession countries made up nearly 60 per cent of recently-arrived migrants in employment during those years, they count for just one in four new migrants currently.

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Non-EU citizens

Since 2013, the share of migrants from emerging economies beyond the EU has accounted for one in three new migrants employed, a tripling of their pre-crisis share. However, visa restrictions for non-EU citizens are onerous and employment is often a prerequisite for residency in the State.

According to the Central Bank report, written by Stephen Byrne and Tara McIndoe-Calder, foreign nationals currently fill about 10 per cent of gross new jobs. One in five new roles is filled by people who are unemployed, with 34 per cent accounted for by employed people switching roles.

The latest estimates from the Central Statistics Office indicate that net inward migration rose by 34,000 last year. The Central Bank study notes that the majority of migrants entering the Republic to work are highly skilled, with most holding at least third-level qualifications.

Housing pressures

While an influx of migrants would help ease labour supply pressures, the report authors warn that it may well create overheating pressures in other areas of the economy, in particular the housing market.

A second Central Bank report, which explores overheating risks in the economy, covers similar ground. The study, written by Thomas Conefrey, Gerard O'Reilly, Graeme Walsh and Luca Zavalloni, warns that policymakers face a difficult dilemma in ensuring there are sufficient people to fill vacancies while also addressing overheating pressures.

The authors advise that continued focus on addressing housing supply shortages will help ensure the State remains an attractive location for the migrants who will be needed. They also say fiscal policy can play an important role in managing excess demand in the economy.

A third Central Bank study, which looks at the slowdown in headline growth in the EU during the second half of 2018 and into this year, indicates that the biggest drag comes from the German manufacturing sector.

"There is some evidence that idiosyncratic factors, particularly relating to the German automobile industry, have played a large role in this recent slowdown," said authors David Byrne and Conor Parle.

The authors warn that the slowdown in the manufacturing sector may spill over to the labour market, as well as to other sectors of the economy.