Jobs growth over the past year has been driven by the public sector, writesDan McLaughlin
The unemployment rate in the Irish Republic hit an all time low of 3.6 per cent in the spring of 2001 and has drifted higher since, albeit at a modest pace, becalmed at 4.4 per cent over recent months. This may surprise some readers, as there seems to have been nothing but bad news on the jobs front of late, particularly in the manufacturing sector.
Yet the limited scale of the upturn in the Live Register implies that employment in the aggregate is still rising, a view confirmed by the publication of the Quarterly Household Survey, which provides a comprehensive summary of labour market trends to May.
Employment is influenced by seasonal patterns so it is not sensible to read too much in to quarterly movements in job creation, with annual changes being a more appropriate measure. On that basis, employment grew by 33,000 in the 12 months to May, a gain of 1.9 per cent, bringing the total numbers at work in the Republic to 1.75 million. This compares to a gain of 36,000 in the year to February and an annual rise of 46,000 in May 2001, signalling that employment growth is slowing, which is understandable given the deceleration in GDP growth over the same period.
Indeed, jobs were lost in a number of industries, notably manufacturing, with employment falling by some 14,000 in the year to May. One would think that virtually everyone in the country worked in manufacturing judging by some headlines, but that sector only accounts for around 17 per cent of total employment and there was strong job creation in other areas of the private sector. Employment in financial services, for example, rose by 11,000, with another 7,000 finding jobs in personal services. Surprisingly, perhaps, employment in construction also rose, albeit marginally, and the number working in restaurants and hotels was unchanged, despite all the stories of a collapse in the tourism industry.
Nevertheless it is clear that although private sector employment growth is still positive, the main factor underpinning the labour market over the past year was the public sector, with employment growth accelerating strongly after a 10,000 gain in the 12 months to May 2001, compared with zero growth to May 2000. The CSO no longer publishes a breakdown between public and private sector employment but most of the jobs created in health and education would be in the former, so it is reasonable to ascribe the large gains recorded in those sectors to the public purse. Employment in education rose by 7,000 and in health the gain was 14,000 with another 9,000 rise in public administration.
Does it matter? One was led to believe that the public sector couldn't recruit people two years ago because the private sector was booming and now that the latter has cooled it is apparently bad news to some that the public sector is being more successful in attracting labour. The reality is that the government spending share of GDP plummeted in the 1990s and even after the recent explosion is still below the share recorded in 1997, let alone 1990. Moreover, budgetary policy can provide a counterbalance when the economy slows, and the employment data clearly shows that transpired in 2001 and 2002.
Private sector employment will pick up again, and another plus point from the Household survey is that the population and labour force is still growing strongly, which implies that the potential growth rate of the Republic is higher than many believe. Immigration is running above most forecasts. Not a picture then of an economy on its last legs and an extraordinary bright one relative to the recent experience.
Dr Dan McLaughlin is chief economist at Bank of Ireland Treasury