John FitzGerald: Has our economy been growing at an unsustainable rate?

Pandemic has fundamentally changed way we work, with different cohorts entering the workforce

The pandemic has shaken up the economy, and especially the workplace, and the results are only gradually becoming apparent. The fact that the pandemic was immediately followed by the Ukraine-driven energy and inflation shocks makes it difficult to identify the significance of some of the changes that we are seeing in the labour market.

Working from home helped the economy to survive the lockdown, and it is clear that a legacy of this experiment is that, where possible, more people are working from home than was the case in 2019. However, the rising cost of heating may see some reversal of this trend. During the pandemic our own energy use for heating went up 10 per cent, as we were both in the house all day. For someone who would be the only person in their house during the day if working from home, it may be cheaper to go into the office, and reduce their heating bills.

When we compare the world of work today with that three years ago, another striking change is a big reduction in average working hours. There has been a 5 per cent drop in average working hours between the second quarter of 2019 and the same period this year, from just over 34 hours a week, to 32.5 hours.

Changed priorities

Some of this fall in hours worked reflects a greater share of part-time jobs, which grew by 18 per cent over the past three years, compared to 10 per cent for full-time jobs. However, that only accounts for some of the change – clearly some people are working fewer hours in their full-time jobs. Coming out from the pandemic, some are choosing to take more family or leisure time, even if that may mean forgoing additional earnings.


The latest Central Statistics Office data also shows that, over the last three years, total hours worked across the economy grew on average by just under 2 per cent a year. This was driven by an increase in numbers employed of 3.6 per cent a year, combined with fewer hours per worker. When account is taken of the huge disruption caused by the pandemic, such an increase in labour input signals a very strong performance by the underlying economy.

However, the economy may have been growing at an unsustainable rate, at least until the energy-related inflation shock hit. There are signs of strain, particularly the exceptional cost of housing. With the unemployment rate back to rock bottom, the high level of jobs growth required a combination of a substantial influx of workers from abroad (some of them returning emigrants), and a big increase in labour force participation. The natural increase in the labour force, as more young people enter the labour market than are retiring, is now playing only a small part.

The rise in labour force participation is not across the board but is concentrated in particular cohorts.

Retail and hospitality

The number of under-20s who are working has risen dramatically, by 70 per cent, in the last three years. Almost all are part-time. Students are clearly filling some of the gaps in the retail and hospitality sectors.

Over the same period, there has also been a significant increase in female labour force participation across all age groups, but especially among women aged 45 to 64, where employment increased by over 16 per cent. Beginning from a low base, the number of people in the labour force aged over 65 has also increased by almost 40 per cent since 2019. Thus students, middle-aged women and older workers have played an important role in facilitating continued rapid growth in the economy. A big advantage of fuelling the growth in the economy through rising labour force participation is that it generally does not require additional housing. The over-65s and women aged over 45 are usually already in secure accommodation.

A high level of net immigration has been the final source for the growth in our workforce. Over the last year, a quarter of the inflow from abroad came from either the EU or the UK, with the rest coming from a range of countries, including some of the first refugees to arrive from Ukraine who found work. However, where the rapid increase in numbers of new jobs is filled by an influx of people from abroad, they generally need somewhere to live. Keeping our growing economy supplied with sufficient workers is adding to the existing pressures in the housing market.

The inflation shock will slow the economy and employment growth. However, in the medium term, the Government may need to rein in potential growth, to enable construction of new homes catch up with demand.