Labour pains

tauringhuang.

Sep 2nd 2008
From the Economist Intelligence Unit ViewsWire

Workers in Ireland are struggling, hit especially by a slump in construction


The effects on Ireland's labour market of a deep slump in the construction sector are becoming increasingly stark. Second-quarter data from the Central Statistics Office show that job creation has almost stagnated, with the numbers in employment increasing by just 0.3% year on year in the second quarter of 2008. This represents a sharp slowdown from a rate of 4% recorded for the same period a year earlier, and that of 2.6% in the first three months of the year.

While a number of sectors recorded declining employment in the second quarter, the overall weakness of jobs growth was clearly driven by a collapse in the construction sector, where employment fell by 26,800 over the year—equivalent to 9.5% of the sector's workforce. There were also drops of between 2.5% and 3% in industry, in the hotels and restaurants sector and in the transport, storage and communications industry. Net job creation was confined to a small number of service sectors, mostly in wholesale and retail and in healthcare.

The sharp fall-off in job creation has led to a corresponding increase in the number of people who are unemployed. In the second quarter the number of unemployed jumped by 15.2%—to 115,500—compared with the same period in 2007, while the rate of unemployment increased to 5.2% (up from 4.6% in the first quarter).

The jobless rate might have increased further were it not for a slowdown in the rate of labour force expansion. The labour force increased by 1% year on year in the second quarter, down from a figure of 2.9% in the previous three-month period. This reflects a marked easing of the level of net inward migration as the economy's prospects have worsened. In the year to the second quarter of 2008 there was non-Irish labour force growth of 25,700, less than half the figure of 54,900 recorded a year earlier.

Part-time cover
A notable recent trend in Ireland's labour market has been an upswing in the rate of part-time employment relative to full-time (from 17.3% of total employment in the second quarter of 2006 to 18.5% two years later). An analysis of this pattern by the Central Bank & Financial Services Authority of Ireland suggests that the increase reflects a structural rebalancing of the labour market away from the construction sector rather than a change in recruitment behaviour at individual firm level. As employment growth has declined in the construction sector, it has shifted to service sectors where part-time working is much more prevalent.

The Central Bank also notes that this shift in employment patterns appears to be broadly in line with employee preferences (of the 384,500 people employed on a part-time basis in the second quarter of 2008, just 1.3% considered themselves to be underemployed). One implication of this shift towards part-time working is that headline employment growth rates may overstate the level of activity in the labour market. Accordingly, when the aggregate second-quarter employment growth rate of 0.3% is broken down it reveals an increase of 11,100 in the number of part-time jobs, but a decline of 4,300 in the level of full-time employment.

Deficit demands
Against the background of a rapidly deteriorating trend in the labour market, the government, unions and business representatives have so far been unable to reach agreement on a new national wage deal. The latest round of talks broke down in August, after unions rejected a proposal for a 5% pay increase over 21 months in a deal that also included a pay freeze of six months for private-sector workers, of 11 months for most public-sector workers and of 12 months for workers in the construction sector.

The unions, while not producing formal pay proposals, were aiming to win pay increases closer to 5% per year to match current rates of inflation. This follows the erosion of gains under the last such pay agreement— which included a 10% increase over 27 months—from above-trend inflation in recent years. Other sticking points included union demands for a floor for the lower paid (that is, those below the average industrial wage of