OECD warning on Irish joblessness

The OECD has warned of a significant long-term unemployment problem in Ireland with rates of chronic joblessness possibly persisting well into the recovery.

In a report, published today, the Paris-based agency said while Ireland's economy may have stabilised, the share of those classified as long-term unemployed has risen sharply, reaching 38 per cent in the last quarter of 2009, well above the pre-crisis share.

The rise in long-term unemployment and its possible effect on labour supply may have negative consequences on economic growth, the report said.

The OECD said these concerns were being compounded by the relatively generous and time-unlimited nature of Jobseeker’s Allowance, which provides weak incentives for work, especially for low-skilled workers.

Job search incentives and programmes to keep the long-term unemployed connected with the labour market will be required to deal with Ireland's growing unemployment rate, it said.

The report, which looked at unemployment across the OECD area, said the jobless rate has probably peaked in developed economies as renewed growth takes hold in the wake of the recession. Ireland's unemployment rate reached 13.3 per cent in May, although there were signs that the economy has begun to stabilise.

The research recommended strengthening job search incentives, including adjusting social welfare payments such as jobseeker’s benefit and jobseeker’s allowance in line with recent trends in prices and market wages, and stricter job search requirements in return for receiving benefits.

"Ireland made some progress in the late 1990s with the implementation of activation policies where, in return for receiving benefits and re-employment services, recipients are required to participate in job search and training," the report said. "While before the recession the emphasis on conditionality may have weakened somewhat, it looks likely that the extensive social welfare reforms that are currently underway will result in stricter job-search requirements as well as their more effective enforcement."

The report noted that Irish employers were more likely to cut jobs than reduce hours than their European counterparts, with the average hours worked remained broadly the same despite a drop in labout demand.

"The limited role of average hours reductions in labour demand adjustment in Ireland is likely to reflect the relatively low cost of hiring and firing and the large concentration of job losses in the highly labour-intensive and low-skilled construction sector," the report said.

More effective job search assistance is also required, the report said, with sufficient resources required to deal with the rise in the number of people seeking assistance from State agencies such as FÁS.

The report noted, however, the implementation of labour market programmes by the Government targeted at the long-term unemployed, including expanded training options, a work-experience programme and the employer jobs incentive scheme that encourage new hires of long-term unemployed by exempting employers from employer social security contributions for the first year.

"These initiatives play a crucial role in ensuring that the long-term unemployed stay in touch with the labour market in a context where their prospects of regaining employment are severely restricted due to the intense competition for a limited number of vacancies," the report said.

"They will also help to equip the unemployed with the appropriate skills and experience for finding a job during the recovery. The latter is particularly important in Ireland as the collapse of the bubble in housing markets means that many of the construction jobs lost during the crisis are unlikely to come back in the recovery."

The depth of the recession means a significant decline in joblessness is not yet at hand and unemployment in developed nations will probably remain above 8 per cent at year end, it said.

"Employment growth is still lagging," John Martin, the OECD's director for employment, labour and social affairs, wrote in the report. "The recovery is unlikely to be sufficiently vigorous to reabsorb rapidly high levels of unemployment."

OECD countries entered the 2008-2009 recession with their lowest collective unemployment rate since 1980, partly a result of labour-market liberalisation intended to create jobs. The result in part was a quicker jump in unemployment now, because more workers have temporary or part-time contracts, with fewer benefits for those without jobs, the OECD said.

Even so, the organisation urged governments to preserve their labour-market changes and go further in the move to a more flexible workforce.

"As the recovery gathers pace, it is essential to create the right incentives for firms to hire more workers," Mr Martin said. "This could involve a rebalancing of employment protection between temporary and permanent contracts. Doing so would allow temporary jobs to function better as stepping stones into permanent jobs, rather than as traps."

Additional reporting: Bloomberg