Job rate is impressive but the taking part is what counts

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By Cormac Lucey

One of the clearest signs of Ireland’s economic recovery since the dark days of 2011 and 2012 has been the sharp drop in the unemployment rate. Having peaked above 15%, it fell to 6.1% in September. The national unemployment rate has shifted more than four-fifths of the way back to the bubble-era low levels of a decade ago. This is remarkable progress over a pretty short period.

The fall in the unemployment rate has been particularly notable among the young. Over the 24 months to August, the unemployment rate for those aged 15-24 experienced more than a one-third drop, from 20.2% to 12.7%.

With the eurozone experiencing an unemployment rate of 9.1%, Ireland’s labour market appears to be considerably healthier than that of our currency colleagues. Unfortunately, this happy picture conceals what’s going on with Ireland’s participation rate: the proportion of the working-age population that is in the workforce, either in employment or seeking employment.

If we examine Central Statistics Office (CSO) data from its Quarterly National Household Survey last December, we see that, while the unemployment rate was 6.9%, the proportion of people aged between 15 and 64 in employment was 65.6%. That means that 34.4% of Ireland’s working-age cohort did not have a job.

For all the talk of strong economic recovery, Ireland’s participation rate remains below the international average. According to CSO data, in 2013 the employment rate of Irish men of working age was 64.6%, compared with the EU average of 69.4%. The employment rate of Irish women was 55.9%, compared with the EU’s 58.7%.

The fact that Irish participation rates in 2013 were below the EU average is glaring — as they considerably exceeded EU levels at the height of the boom in 2007. Then, the participation rate for Irish men exceeded the EU average by more than five points — 77.5% versus 72.4% — while the rate for Irish women exceeded the EU average by 2.5 points — 60.6% compared with 58.1%.

What is going on? To address that question we need to consider what drives the difference between the rate of people officially unemployed — 147,000 as of last December — and the number not in employment — 1,257,000.

There are several contributing factors. For starters, there are many people aged between 15 and 64, especially the young, who remain in full-time education. Many aged 18 and under will still be at school — probably about 200,000 — while, in 2016, there were 180,000 full-time enrolments in third-level education courses in the state. An increase in numbers in education over the past decade partly explains the fall in Ireland’s participation rate.

Another factor causing the drop over the past decade is a significant rise in the numbers of disabled people. Data from the Department of Social Protection indicates that the numbers claiming disability allowance increased from 84,000 in 2006 to 119,000 in 2015. That is a 42% jump in a status that may be difficult to determine objectively. Over the same period, there was a fall in the numbers claiming the blind pension — and thereby meeting an objective test.

Was it a coincidence that the biggest percentage increase in the numbers claiming the disability allowance over the past decade occurred in 2008, the year when Ireland’s economic deterioration was fastest? Is it possible that some people are using the cloak of disability to opt out of a difficult labour market and into early retirement?

It is interesting to consider the percentages of people who are outside the labour force by nationality. At the end of 2016, 41% of Irish nationals aged 15 and over were not in the labour force. This compared with 32.5% of non-nationals and less than 23% of EU nationals. So if you are going to opt out of the workforce, it’s more likely you will do so at home.

A broader concern emerges when one reads a 2016 research paper, Understanding Irish Labour Force Participation, by Central Bank of Ireland economists Stephen Byrne and Martin D O’Brien. Their paper aimed to identify the relative influence of structural and cyclical factors in the recent deterioration of Irish labour force participation.

One aspect of their analysis that got my attention was the gradual fall-off in labour force participation rates (LFPR) that starts for men in their thirties and which accelerates dramatically from their mid-fifties. For women, the sharp drop in the participation rate begins in their mid-twenties. It is notable that, in comparison with men, women at all ages above 25 have lower LFPRs.

Presumably, this is a result of more women than men remaining at home to mind families. It is important to state that just because a person is not in the paid workforce does not mean that they are not doing important work. All the pedagogic evidence is that children benefit more from teaching and attention the younger they are. Ireland’s educational system manages to get things backwards by spending more on our older children.

While the pattern of reduction in male LFPRs has changed little in recent years, there has been a noticeable improvement in female LFPRs across different age cohorts when we compare 2014 with 1998. As Byrne and O’Brien observe: “A female in her thirties and older in 2014 has a much higher tendency to participate than a female in her thirties and beyond had in 1998.”

The big concern is that by the age of 60 only about 60% of men and less than 50% of women are still in the workforce. Yet policymakers wish to solve the pensions crisis by extending the retirement age to 70. That solution may work in theory but it can be made to work in practice only if many more people continue working in their fifties and sixties, and so are capable of working until they are 70.

While the rustbelt revolt of disaffected voters in the developed world — northern England in the UK, flyover states in America, and Saxony in Germany — may have ostensibly focused against outsiders — the EU, Mexicans and foreign refugees — the real source of job displacement may be automation.

Advancing automation is displacing both white-collar and blue-collar jobs. That would not just undercut policy plans to extend the pension age to 70, it could also undermine social solidarity and the foundations of democracy.

Published in The Sunday Times (Ireland edition)

October 8th 2017

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