Is Ireland heading for full employment?

The latest figures on employment and unemployment, published by the Central Statistics Office last week, provide a key window on the economy. Given the problems with our GNP growth figures, we rely a lot on these employment data to know what is going on in the real economy.

Although too much weight should not be put on a single quarter’s figures, behind the headline data of more subdued job growth in the second quarter of this year, compared with the first, is a more positive story.

In the second quarter full-time employment was up 5 per cent year on year. This was counterbalanced by a fall in part-time employment of 6.4 per cent since last year, nearly all of which was made up of people who wanted to work longer hours, and have now achieved their goal. The sectors with the biggest reduction in part-time working were construction and retailing. The net effect was an annual increase of 3.3 per cent in full-time-equivalent employment. This is broadly consistent with the economy continuing to grow at more than 5 per cent a year, as it has since 2014.

The big reduction in part-time work by people who would prefer a full-time job is a significant indicator of how the labour market is tightening

The big reduction in part-time work by people who would prefer a full-time job is a significant indicator of how the labour market is tightening. Employers will have to work harder over the coming year to ensure that they hold their employees. Even without increased regulation, zero-hour contracts, which are pretty unattractive for many employees, may prove counterproductive for employers.

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The sectors showing the biggest annual growth in employment are construction and information technology. In the construction sector the crane count – literally, the number of cranes against the skyline – has proved a good leading indicator of activity in commercial building. There are also many signs of a pick-up in house building. It is just that we need to see a lot more such activity.

The Quarterly National Household Survey data also show employment changes by level of education. Over the past year the number of graduates at work has increased by almost 7.5 per cent, while employment of those without a Leaving Certificate has fallen. This largely reflects changes in the composition of the labour force – unemployment has also fallen for those without a Leaving Cert.

This changing educational composition of the labour force reflects past investment in education. The crisis years encouraged many young people, especially boys, to remain in education rather than face unemployment. As early school-leaving among boys fell, their share going on to third level also rose. Education participation rates by girls, already high, also continued to improve. So, with rising education among new entrants to the labour force, the educational attainment of the workforce will continue to rise well into the future.

The continuing fall in unemployment for those with the lowest educational attainment shows that they too are benefiting from the economic recovery

The better-educated labour force is matched by the changing demands of the economy. With the exception of construction, the sectors growing most rapidly tend to employ a high percentage of graduates. Across the EU economy, growth has also largely been in sectors seeking graduates. The European countries whose education systems have best matched this changing pattern of labour demand are the most successful in tackling unemployment.

There are concerns in Ireland and elsewhere that many in the workforce have higher qualifications than required for their current employment, an issue touched upon by the president of the European Central Bank, Mario Draghi, when he was in Dublin last week. This could reflect a pattern where jobs are allocated to those with the highest qualifications, squeezing out those who could also do the job but have more limited qualifications. But the continuing fall in unemployment for those with the lowest educational attainment shows that they too are benefiting from the economic recovery.

The State pension age was raised from 65 to 66 in 2014, and it is set to rise to 68 in future years. As people are living longer, the economics of the pension system make it sensible to encourage people to stay longer in work. For the over-60s a combination of higher pension age, higher educational attainment, more desk-based jobs, and greater participation by women all help explain a significant rise in their labour-force participation in the past five years.

This increase is particularly marked for women: in 2013 36 per cent of women aged 60-64 were in the labour force, whereas today the figure is 44 per cent. Retaining these skills and expertise for longer in the workforce will contribute to long-term growth in output and welfare.

In spite of the importance of encouraging people to work for longer, however, the age for compulsory retirement in the public sector generally remains at 65.