John FitzGerald: Increasing numbers in education could pay off for Ireland

During the crisis years there was great concern that the huge rise in unemployment and extensive emigration would do permanent damage to the economy.

After the earlier 1980s crisis, many individuals had become long-term unemployed, while others dropped out of the labour force altogether. This time around things are rather different.

The economic collapse between 2008 and 2010 had a much bigger impact on men than on women. Whereas, before the crisis, male and female unemployment rates were very similar, the male rate peaked at 18 per cent of the labour force in 2012, while the female rate peaked at 12 per cent.

Emigration rates also showed a distinct gender pattern: the total net emigration rate for men aged 15-34 between 2009 and 2015 amounted to 13 per cent; for women it was only 5 per cent. The biggest job losses of the recession were in the predominantly male construction sector, which largely explains why men were harder hit.*

Since its peak early in 2012, the long-term unemployment rate for both women and men has more than halved and is still falling steadily. If the economy continues to grow, we can look forward to a return to full employment by the end of the decade.

The economic crisis has had a more permanent effect on labour force participation rates, raising concerns about a “discouraged worker” effect.

The male labour force participation rate is today 84 per cent (for those aged 20-64), down from 87 per cent in 2007. The female participation rate, which had been rising over the preceding decade, is now little different from what it was in 2007. However, it is essential to look behind the headline data.

All of the fall in participation rates has been concentrated in the cohort of men and women aged 20-29. The data show that this decline in participation is explained by a very big increase in the numbers remaining in education, rather than opting out of the labour force altogether.

Boom years

Clearly, the effect of the recession years has been to encourage a large number of young people to persist in their education. In the boom years, many boys left school before Leaving Certificate to take up employment, especially in building. However, these job opportunities disappeared after 2007 and, as a result, many more boys are completing their Leaving Cert today.

For girls, the proportion completing their second level education was already high before the recession began and it has remained high.

However, the really big change in behaviour since 2007 is among men and women in their 20s. In 2007, just under a quarter of those aged 20-24 were students. Today the proportion has risen to 40 per cent, with both men and women increasing their propensity to stay in education.

Increased participation in third level education during a recession is not unusual. Research shows similar findings for the UK and Sweden. However, where Ireland stands out today is that, with a return to growth, there is no sign of a return to previous levels of educational participation for those in their 20s.

With fewer people today in their 20s, Ireland’s numbers in this age group in third level would have fallen from 110,000 in 2007 to just 70,000 today, if education participation rates had remained at the 2007 level. Instead, the sustained increase in education participation means there are now 120,000 students in 2016, causing major pressure on the third-level sector.

While there has been a limited increase in the total number of graduates, increased participation rates are partly due to individual students spending more years in college: people in their 20s today spend an additional year as students compared to 2007.

If increased time spent in education by those in their 20s raises their productivity and life-time earnings, it will prove a very valuable investment both for the individuals and for society as a whole. However, if spending longer in college has just reflected reduced job opportunities, without a commensurate rise in expected life-time earnings, then a reversion to the lower education participation rates of the pre-crisis years may be sensible.

As yet we don’t have an answer to whether the investment in extra education pays off. If it was a good investment, then much of the lost output of the last seven years may be recouped by higher growth in years to come. However, if spending longer in college doesn’t raise lifetime productivity, investing private and public resources in this form of increased participation should perhaps be revisited.

* Recent Trends in Female Labour Force Participation in Ireland by Maxime Bercholz and John FitzGerald/ESRI http://iti.ms/2cDPg95