Immigration helps economy's performance

Economics: Ireland is a rich country, but in one respect - population growth - it is much closer to a poor developing economy than to its peer group in the developed world.

In recent years the population of the Republic has grown by 1.6 per cent a year, which is much faster than the figure for the planet as a whole (1.2 per cent) and identical to the average for developing countries as a group.

Moreover, the latter is slowing while the Irish population growth rate may well have accelerated in the past year and is now probably ahead of the developing country norm.

Population growth in the EU is much slower, in contrast, at around 0.2 per cent per year, and in a number of smaller countries the population is actually falling, with most forecasts envisaging a similar fate for some of the larger economies, including Italy and Germany, within the next decade.

Ireland's fertility rate has been in trend decline for some time now but it is still the highest in the EU and appears to have risen slightly in the past few years. Consequently, the natural rise in the Irish population, at around 0.8 per cent per year, is substantially above the EU norm and would give rise to a net increase in the population of the Republic of some 32,000 per annum.

The actual increase has been running at twice this figure, implying that about half of the increase in population in Ireland is due to immigration, which has gone through a number of step-changes in recent years.

The first was in the mid-1990s, when net migration turned positive for the first time since the early 1970s, marking a welcome respite from the huge exodus seen in the 1980s - over 70,000 people left Ireland in 1989 alone, dwarfing the 27,000 immigrants, to leave a net outflow of 44,000. Indeed, the scale of emigration was so high in this period that the overall population actually fell, from a high of 3.546 million in 1987 to a low of 3.506 million in 1990.

The year 1996 marked a turn of the tide, although the figures for the rest of the decade were relatively modest in terms of inflows, and most were returned exiles.

A second change occurred from the millennium year, when the level of immigration rose to over 50,000 for the first time, with the level of emigration declining, to give an annual average net immigration figure of 34,000 a year for the period 2001-2004.

The composition of immigration also changed at that time, with the proportion of Irish-born immigrants in 2004 falling to one-third of the total, and the percentage originating from outside the EU and US rising to 30 per cent, from under 10 per cent in 1999.

The Central Statistics Office (CSO) publishes its population and migration estimates in September, so we have a few months to wait for the 2005 figures, but it seems clear that immigration has undergone a third step-change, following the expansion of the EU in May of last year.

Accordingly, it appears that there has been a substantial inflow of migrants from the new accession states, particularly from Poland and the Baltics, and it would not be a surprise if immigration in 2005 exceeded 70,000, a new record. Emigration tends to run around 20,000 at a minimum, so net migration may well be running at 50,000 a year.

This economic migration is demand driven, reflecting Ireland's full employment economy and relatively low direct tax regime.

Employment rose by over 72,000, or 3.9 per cent, in the year to the first quarter of 2005 but the level of unemployment was broadly unchanged, signalling that the economy is now at full employment and that job growth is therefore now constrained by the growth of the labour force.

The latter is still high in a European context, thanks to a combination of a young age structure and an upward trend in the participation rate (particularly from married women) which resulted in a 46,000 rise in the indigenous labour supply.

So, in the absence of immigration, the employment rise would have been constrained to under 50,000, or some 2.5 per cent, with a concomitant constraint on overall economic growth. In the event the actual rise in the labour force was 71,000 as the indigenous growth was augmented by 25,000 immigrants so allowing employment to grow at the pace it did.

The Irish economy is therefore in a very different place from its European partners. Most of them are facing stagnant or even falling population growth and rising dependency ratios, which leads to weak economic growth, a decline in savings and investment, and falling equity markets.

Ireland's population surge, in part due to strong immigration, pushes that day into the distant future.

Dr Dan McLaughlin is chief economist with Bank of Ireland