This month’s unemployment rate should be in single digits

Ireland’s unemployment rate is in steady decline. Having reached 15.1 per cent at the apex of the crisis, the jobless rate eased to 10 per cent in March. The rate is still a great deal higher than the pre-crash average of 4.5 per cent, meaning hundreds of thousands are still without work. But an unemployment figure in single digits is likely this month. This is a key psychological threshold.

The Government is already drawing an appreciable benefit from increased employment in the form of higher income tax and PRSI returns and lower welfare expenditure. Indeed, Minister for Jobs Richard Bruton notes that every person who leaves the live register to take up employment saves the exchequer about €20,000 a year.

The latest data, with no seasonal adjustment, show that 348,676 people signed on the live register in March, 42,556 less than in the same month in 2014. The standardised unemployment rate this time last year was 11.9 per cent, almost two percentage points higher than the present rate.

The very early phase of the turnaround was marked by a rise in part-time employment. As recovery deepens, figures point to an advance in full-time employment. In 2014, for example, the number in full-time work rose 39,600 and the number in part-times jobs dropped 10,500. This supports the growth in earnings, tax returns and consumption in the domestic economy.

The positive trend is such that Taoiseach Enda Kenny has begun to talk of the return of “full-employment” by 2018, two years earlier than foreseen previously.

Full-employment in the Government’s conception would point to an unemployment rate below 6 per cent. It is clear that unemployment would not be eliminated in that case. To get there necessitates taking a further 160,000 people off the live register over the next four years. That equates to a net increase of 40,000 jobs this year and in of each of following three years, which would amount to a huge step-change in economic activity.

Can this be done?

The target is certainly ambitious. Indeed, the latest staff projections from the IMF suggest Ireland’s unemployment rate will ease only to 8.2 per cent in 2018.

Progress in train

Forecasting over years is a perilous business. Accuracy deteriorates the further out you look. In the immediate sense, however, the IMF forecast underestimates the progress in train. The fund puts Ireland’s unemployment rate this year at 10 per cent, the level reached last month, and 9.1 per cent in 2016.

This is more conservative than the Central Bank, not quite the most radical bunch in the land, whose new spring forecast points to an average unemployment rate this year of 9.8 per cent and 8.7 per cent next year.

The ESRI is more bullish. It forecasts average unemployment this year at 9.7 per cent and at 8.4 per cent for 2016, which is not far off the IMF’s 2018 forecast. If the downward slide continued the eventual year-end rates, whatever they are, would be less than the average through the years in question.

According to the Central Bank, employment growth will increase in 2015 to 2.1 per cent and to 2.2 in 2016 from 1.9 per cent in 2014. Employment is projected to expand faster than the labour force, forecast to grow 0.6 per cent in 2015 and 0.9 per cent in 2016, so that too would ease the unemployment rate.

The improving outlook is contingent on a continued advance in domestic demand and in exports, which underpin the acceleration in growth. This assumes no local or international shock, that the recovery of the US and British economies proceeds, and that the euro zone finally picks up after a prolonged bout of decline and stagnation.

At the heart of the Government’s strategy is its reliance on the job-generation capacity of IDA Ireland and Enterprise Ireland, which supported a net increase of 15,500 jobs between them in 2014.

Yet barriers to progress must also be overcome. At issue now is whether the cost competitiveness regained in the crash can be maintained. A further challenge is to ensure rapid employment growth is not hampered by any shortage of skilled workers or office space, or deficiencies in road, electricity and water networks.

Although long-term claimants on the live register fell 18,932 to 160,403 in the year to March, matching jobs with skilled workers becomes more difficult as employment growth accelerates.