Academic journal article Journal of the Statistical and Social Inquiry Society of Ireland

Developments in the Irish Labour Market during the Crisis: What Lessons for Policy?

Academic journal article Journal of the Statistical and Social Inquiry Society of Ireland

Developments in the Irish Labour Market during the Crisis: What Lessons for Policy?

Article excerpt

1. INTRODUCTION

Less than a decade ago, papers analysing the Irish labour market were being given titles such as \When unemployment disappears" (Walsh, 2006). This was not an exaggeration. Unemployment in Ireland fell consistently throughout the 1990s and early years of the 2000s, from rates of 15.7% in 1998 to barely 4% in 2000. Not only was this low rate of unemployment achieved, it was sustained at a similar rate until the advent of the financial crisis in 2008, which was exacerbated in Ireland by a spectacular bust in domestic house prices. The domestic slow-down in construction was evident somewhat before the global recession (for example, house price growth turned negative from late 2007) yet the combination and mutual re-enforcement of the two shocks had an extremely negative effect on the Irish labour market. Unemployment reappeared in dramatic fashion, tripling from 5% in the first quarter of 2008 to reach a peak of 15% in the third quarter of 2011.

A number of papers have examined specific dimensions of recent labour market changes. Kelly, McGuinness and O'Connell (2012) examine transitions to long-term unemployment among young people. Focussing again on the younger age cohorts, Kelly et al. (2013) analyse important drivers of transitions out of unemployment among this cohort. Some studies have examined wage adjustment during the crisis (Bergin et al., 2013; Doris et al., 2013). This paper provides a comprehensive description of the evolution of the Irish labour market over the past fifteen years, with a particular focus on developments since 2008. Detailed micro data from the Quarterly National Household Survey (QNHS) is used to examine the changes in employment and unemployment levels and characteristics and also to calculate flows between the different labour market states. We also examine the available data on vacancies and provide an overview of the evidence on wage adjustment.

Some key messages emerge from this analysis. Exploration of the detailed data points to an exceptional degree of variation underlying the changes in aggregate labour market indicators. While total employment declined by over 300,000 during the recession, young males with low levels of education suffered the largest losses. Our analysis shows that the current stock of unemployed workers contains a large number of young males without third-level qualifications who were previously employed in the construction sector. Moreover, a significant proportion of the unemployed have no previous work experience at all. Although net outward migration has been significant and has moderated the rise in unemployment, the continued high level of inward migration during the crisis has meant that overall net migration has not reached the levels recorded during the 1980s despite large gross outflows. The analysis points to a possible problem of skills mismatch in the labour market given the pool of unemployed workers contains a large number of those previously employed in construction while vacancy rates are highest in sectors such as IT and professional services.

Our analysis gives rise to a number of important policy implications. The nature of the shock experienced by the labour market and the characteristics of the unemployed point to the need to carefully target policy at the most disadvantaged groups, in particular young males with low education and little or no previous employment experience. Given some evidence of skills mismatch in the labour market, there could be a high return to activation policies closely targeted at those areas of the economy where demand is increasing and vacancies already exist. The nature of the employment loss during the crisis indicates that an improvement in domestic demand is also needed to bring about a sustained fall in the unemployment rate.

The remainder of this paper is structured as follows. In section 2, we present evidence on estimates of Okun's law for Ireland and look at changes over time in employment and unemployment by detailed characteristics such as age and education. …

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