Fears of a 'lost generation' recede as long-term unemployment falls

Better trained and educated unemployed a good fit for expanding workforce

While the headline unemployment figures chart a remarkable turnaround,  long-term unemployment is still almost double what it was prior to the crash in 2007. Photograph: Frank Miller

While the headline unemployment figures chart a remarkable turnaround, long-term unemployment is still almost double what it was prior to the crash in 2007. Photograph: Frank Miller

 

Predictions that the crash would lead to a lost generation of long-term unemployed have proved unfounded.

Figures published this week by the Central Statistics Office (CSO) show that the number of people out of work for more than a year now account for just 2.8 per cent of the workforce. That’s still 65,500 people but it is down from a pre-crash peak of 9.8 per cent or 215,700 people in 2012.

Contrast this rapid turnaround with the 1990s when long-term unemployment remained high for several years after the recession of the late 1980s had receded and even persisted into the Celtic Tiger era, when the economy took off.

So what’s different this time? Experts typically point to the educational profile of those made unemployed during the crisis, which was significantly higher than those languishing in dole queues in the 1990s. That allowed them to re-enter the workforce easier.

They also highlight the mass emigration of Irish and new EU workers in exposed sectors such as construction, which changed the composition of Ireland’s labour market in the wake of the crash.

In the doldrums

Seamus McGuinness, of the Economic and Social Research Institute (ESRI), says the causes of long-term unemployment are multiple and complex, but he highlights the duration of the downturn as a significant factor.

Essentially, the longer the economy remains in the doldrums, the longer workers remain outside the labour market, potentially becoming deskilled in the process.

In Ireland, economic growth returned rather quickly after the crash, fuelled by a pick-up in exports initially and later by a recovery in domestic demand. That translated into several years of jobs-rich growth, even if wages and debt levels remained on a recessionary footing.

“While there was a rapid growth in long-term unemployment initially, the numbers classified as very long-term unemployed – [people] out of the labour market for three or four years – may have remained small. People, on the whole, were closer to the labour market this time around,” says McGuinness.

In its new Labour Force Survey, the CSO said that long-term unemployment now accounted for 40 per cent of total unemployment, noting this was the first time since the fourth quarter of 2009 that it made up 40 per cent or less of the total.

Attract workers

The point is that long-term unemployed people are being driven back to work at similar rates as their short-term equivalents. This seems to contradict international research that suggests being unemployed for a long time can be extremely marginalising. Employers typically ignore this cohort of candidates and even hike wages, if necessary, to attract workers from the ranks of the short-term unemployed.

“Our research indicated that being long-term unemployed was no longer as major a barrier to getting a job as it was in the past,”says McGuinness.

“ It seems that individuals were less scarred by being long-term unemployed in the most recent recession, which may be explained by employers perceiving long-term unemployed status to be driven more by the rapid change in economic conditions rather than a negative individual trait,” he adds.

What happened in Ireland in the 1990s is that long-term unemployment morphed into structural unemployment, a longer-lasting form of unemployment caused by fundamental shifts in the economy.

Declining industries

Back then, many unemployed workers, who had been laid off in the 1980s, came from declining industries and didn’t have the skills demanded by the fast-growing multinational sector.

“Structural unemployment basically reflects the mismatch between the skills of those who are long-term unemployed and the skills required as the industrial base evolves and new sectors of employment emerge,” says Tom McDonnell of the Nevin Economic Research Institute (Neri).

The rapid fall in long-term unemployment here over the past five years “suggests to me that a large proportion of peak long-term unemployment was related to a lack of demand in the economy as opposed to a skills mismatch in the labour force”.

A notable exception to the skills mismatch argument is construction. At the low-point of the recession in 2012, about 30 per cent of the 215,700 people classified as long-term claimants on the Live Register were former construction workers, reflecting a structural shift away from the construction in the Irish economy in the wake of the property crash.

In 2007, the industry employed more than 300,000 workers; now it is about 160,000. While many former construction workers may have retrained and taken up jobs in other sectors, it is likely that many have emigrated and not returned.

Construction tide

Having left such a large crater in the employment statistics, the construction tide now seems to be turning, courtesy of a pick -up in housebuilding and a ramping up of Government spending on capital projects. Ironically this may be one of the leading factors in driving down long-term unemployment and increasing net inward immigration.

“In an open economy like Ireland’s, if the skill base required by employers cannot be found internally, jobs will be sourced from overseas,” McDonnell says.

“An increasing employment rate cannot, therefore, guarantee a fall in the amount of long-term unemployed. There needs to be an alignment between the skills of the long-term unemployed and the skills required by employers. Life-long education and upskilling are fundamental to achieving this,” he says.

While the headline unemployment figures chart a remarkable turnaround, it’s worth noting that long-term unemployment is still almost double what it was prior to the crash in 2007.

The rapid return to full employment in the United States and the UK in the wake of the financial crisis featured surprisingly slow wage growth. Wages should rise when economies approach full employment. The discrepancy has been linked to the gig economy, which is often characterised by precarious work conditions and low pay.

“A key indicator of labour market flexibility is the share of employees on non-permanent contracts. This is also a key characteristic of gig economy jobs,” McGuinness says.

However, while this type of employment did increase over the recession, he says it has since fallen back subsequently.

Another factor in the long-term unemployment equation is the quality of the labour market activation measures put in place by the Government.

Minded by the experience of other European countries and Ireland’s previous experience with long-term unemployment, the Government took a more activist approach to unemployment this time around through its Pathways to Work programme, says Philip O’Connell, director of the Geary Institute for Public Policy at University College Dublin.

Pathways to Work upended much of Ireland’s traditional activation architecture, rolling back old institutions like Fás in favour of new ones like Intreo, which provided a single point of contact for all employment and income supports.

New penalties for those who weren’t actively seeking working were also introduced.

“In the previous period and right through the boom, we didn’t do a good job of supporting and cajoling people to actively search for jobs,” he says.

“This time the Government learned from what was going on elsewhere in Europe and the OECD and they implemented a more activist approach to unemployment”.

Prof O’Connell cites an Indecon evaluation report on the Government’s JobBridge internship scheme, published in 2016, which showed it significantly enhanced people’s chances of getting back into full-time work. Just like the causes of long-term unemployment, the remedies seem to be multiple and complex.