Brexit could be about to overturn a 150-year pattern for Ireland

The State has been part of a broader labour market covering Britain and Ireland for more than 150 years. Since the Famine, Irish workers have been freely able to move between the two islands. For most of that period there was a one-way flow, with vast numbers of young Irish people emigrating to find better paid employment in Britain and further afield. Since restrictions were placed on emigration to the US in the 1920s, Britain has attracted the bulk of those leaving Ireland.

Traditionally, the key factor driving emigration from Ireland has been the prospect of a better standard of living in Britain than could be obtained at home. A series of studies since the 1960s showed that when unemployment was much higher in the Republic than in the UK, many Irish people emigrated, and when that gap closed, they tended to return. As well as the prospect of finding a job, the higher pay which workers could get in Britain was a key attraction.

In the 1920s and 1930s, Irish workers were paid about 60 per cent of what they could earn in Britain. However, in spite of the lower pay, many chose to stay in Ireland, as emigrating was a massive wrench. Our tradition of the American wake reflected the reality that many of those leaving would never see their families again. While the UK is nearer, those emigrating there in an earlier age knew that return visits would be infrequent because of the cost and time needed to journey home.

Better communications, with easier and cheaper travel and phone links, helped to make a difference in the emigration experience from the early 1960s. With a lower psychological cost of emigration, a much smaller pay gap would induce young people to emigrate for a better material standard of living. So the Republic and the UK became more like a single labour market, and wage rates here converged towards UK levels. Whereas pre-1960 Irish wage levels were about 60 per cent of UK rates, by the 1970s this had moved closer to 85 per cent.

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Our pattern of migration, which responds quickly to changing economic incentives, makes the Irish labour market unusually flexible. It also means that, in the long run, employers in Ireland have to roughly match what emigrants can get elsewhere. As a result, most of the effective burden of labour taxes, such as PRSI contributions, ultimately falls on employers. By focusing on net rewards to labour, under the initial social partnership deals in the late 1980s, Irish unions and employers were able to agree to wage moderation in return for cuts in taxation.

The extreme openness of our labour market means that wage rates in Ireland have not been very responsive to unemployment rates here. Rather, labour market conditions in the outside world, especially in Britain, have affected wage formation in Ireland. It was UK wage rates, rather than national pay agreements, that set the long-run course for Irish pay rates in the past. However, social partnership deals helped the labour market adjust without industrial strife.

European labour market

Over the last 20 years, the single European labour market has become a much more important part of the Irish migration story. Not only did better economic conditions in the Celtic Tiger years induce some of our own migrants to return home, EU accession for Eastern Europe brought many people to come to work in Ireland, to benefit from higher wages. However, the shock to our labour market from the post-2008 economic crash, combined with fast economic growth in the new member states, has reduced this incentive to come here.

Migration flows to Ireland now depend on the relative performance of the wider European economy. In the early 2000s, and again since 2010, the Republic's wage rates have averaged 110 per cent of the EU-15, providing an incentive for migrants from western European states such as Spain or Italy experiencing high youth unemployment.

Economic difficulties in the UK have reversed the relative returns from working in the UK or the Republic. While in the early 2000s, average earnings here were 95 per cent of what they were in the UK, since 2010 our wage rates have averaged between 105 per cent and 110 per cent of the UK levels. However, with gyrations in the sterling exchange rate, the difference varies considerably from year to year.

Brexit, if it goes badly for the UK, could accentuate the pull factor of the Irish labour market, and see an increase in immigration from the UK to avail of a higher standard of living here. That would be a reversal of the pattern of migration of the last 150 years.