UNEMPLOYMENT COULD fall to pre-recession levels by the middle of the decade, according to a new report by the Economic and Social Research Institute (ESRI), published this morning.
The think tank believes that its optimistic scenario for employment is the most likely medium-term outcome, owing to the flexibility of the Irish labour market. However, should the economy expand along an alternative “low growth” trajectory which the institute sets out, joblessness would average 7.1 per cent of the workforce in the period 2014 to 2020.
In order to minimise the risk of such an outcome in Ireland, the ESRI repeated its call for a more activist Government approach to labour market policy. According to the report, the public sector cannot be expected to support job creation. It estimates that the numbers employed by the State would fall by 40,000 over the next five years, “largely achieved through natural wastage”.
Migration patterns will depend on the strength of the wider economy, it says. Under the ESRI’s higher growth scenario, net emigration would reach a cumulative total of 160,000 in the five years to 2014 and this would rise to 200,000 if the recovery is weak.
While the ESRI’s low growth scenario is more optimistic than the forecasts of either the International Monetary Fund or the European Commission, it represents a downward revision on the same longer term forecasting exercise carried out by the institute in May 2009. The revisions are entirely related to the costs of the banking crisis.
Most of the policy-relevant content of the report focuses on levels of taxation and spending. The ESRI is emphatic in its view that budgetary tightening remains imperative.
Indeed the report says the Government should consider an even tougher budget for 2011 than is envisaged. Such a front-loading would drive down the risk premium Ireland pays to borrow in international markets.