Is Ireland in danger of hitting the wall of full employment?

Not necessarily: there may be a reserve pool of labour to nullify risk of rapid wage inflation

The State’s participation rate remains at 62 per cent, which is low by international standards. Photograph: iStock

The State’s participation rate remains at 62 per cent, which is low by international standards. Photograph: iStock

 

There’s an assumption that the Irish economy is headed towards full employment, and with good reason. We’ve moved from having one of the worst jobless rates in Europe (16 per cent in 2012) to one of the best (5.1 per cent in July) in just six years.

Employment rose 2.9 per cent, or 62,100 year on year, in the first quarter of 2018, pushing total employment in the Irish economy to 2.237 million. This was marginally above the boom-time high recorded in the final quarter of 2007, which means that, statistically at least, all the jobs lost during the downturn have now been recovered.

But there’s a caveat. This time around the State has a bigger population and a larger workforce, and the employment rate – the proportion of adults with jobs – is still below the pre-crash level.

If the State’s participation rate remains at 62 per cent, which is low by international standards and five percentage points lower than in 2007, we might hit full employment quite soon with potentially negative consequences for our competitiveness in terms of wages and prices.

However, several analysts believe the strong surge in employment growth will drag more people into the labour market, picking up the slack before we hit the wall of full employment.

Female participation

In a recent article for The Irish Times, economist John FitzGerald noted that the exceptional economic growth of the 1990s – where the economy grew by an average of 8 per cent a year between 1994 and 2000 – owed a lot to the increased labour market participation of women.

The Economic and Social Research Institute (ESRI) believes full employment equates to a jobless rate of under 5 per cent, but after the boom of the 1990s it sank to a record low of 3.9 per cent in 2001.

The point is that we may have a reserve pool of potential labour that can sustain further jobs growth without pushing us into rapid wage inflation.