2. Trends, opportunities and challenges in the Irish labour market

Abstract

This chapter describes labour market trends in Ireland, presenting the context for the counterfactual impact evaluations of Community Employment (CE) and Tús and the analysis of sequences of referrals to active labour market policies (ALMPs). Ireland’s labour market is sound and has markedly improved over the last decade, despite temporary difficulties triggered by the COVID-19 pandemic. Employment outcomes differ across socio-economic groups, most notably depending on educational attainment. These disparities are also reflected in the profile of long-term unemployed people who are the main target group of the ALMPs examined in the other chapters of this report. In recent months, the Irish labour market has tightened, making it more difficult for firms to recruit skilled labour. More generally, labour shortages risk putting stress on the Irish economy in the years to come, as Ireland is ageing and the level of skill mismatch is high.

2.1. Introduction

This chapter takes stock of labour market trends in Ireland over the last two decades, laying the groundwork for the counterfactual impact evaluations of Community Employment (CE) and Tús and the sequencing of active labour market policies (ALMPs). CE and Tús are ALMPs that provides job opportunities in local communities to jobseekers who struggle to find employment. The chapter pays specific attention to long-term unemployed people, i.e. people who have been out of employment for at least 12 months, as they are the main target group of CE, Tús and many other ALMPs, and any assessment of their effectiveness should take account of the broader labour market context affecting the long-term unemployed.

The chapter is organised as follows. Section 2.2 discusses general labour market trends in Ireland, especially trends in employment and unemployment, showing that the Irish labour market has improved markedly over the last decade. Section 2.3 discusses labour market disparities between socio-economic groups with a focus on disparities in long-term unemployment. Following this, Section 2.4 shows how Ireland’s labour market has performed since the outbreak of the COVID-19 pandemic and discusses challenges Ireland is currently facing and expected to face in the future.

2.2. Boom, bust and recovery in the Irish labour market

Ireland’s labour market has been characterised by three main episodes over the last two decades (Figure 2.1). First, employment levels increased strongly between the early 2000s and the start of the global financial crisis (GFC), with employment rates among 15-64 year-olds rising from 68% in 2000 to 72% in 2007. Ireland’s employment rate was 3 percentage points higher than the OECD average in 2000, and exceeded the latter by 6 percentage points in 2007, moving Ireland into the upper third of OECD countries in terms of employment rates. Increases were stronger for female employment rates over this time period (+7 percentage points). Second, between 2007 and 2012, employment rates plummeted as the GFC hit and the European debt crisis unfolded, dwindling to a low of 60% in 2012. In this context, many people decided to leave the country, leading to negative net migration flows between 2010 and 2014. Outflows of emigrants exceeded inflows of immigrants by more than 25 000 individuals per year between 2010 and 2012 (Central Statistics Office, 2022[1]). Third, as the economy recovered, employment rates experienced another phase of strong growth, from 60% in 2012 to 74% in 2022, despite temporary declines related to the COVID-19 pandemic (see section 2.4).

Overall, employment levels in Ireland have been more volatile than in many other OECD countries (Figure 2.1), requiring flexible labour market policies to adapt to changing circumstances. While Ireland was among the top performers in the OECD in terms of labour market outcomes in the early 2000s, it faced the biggest drop in employment rates among all OECD countries between 2007 and 2012 (-12 percentage points in Ireland against -1 percentage point for the OECD average). After 2012, Ireland resumed outperforming the majority of countries and was one of only seven OECD economies with two-digit employment increases between 2012 and 2022.

Figure 2.1. Employment rates are on the rise, but have been volatile

Today, employment rates are slightly above the OECD average. In 2022, 74% of persons aged 15-64 were employed, comparing to 69% in the OECD. There is some scope for further improvements, however. All other Northern European countries except Latvia report higher employment levels than Ireland, with the highest rates in Iceland (83%), the Netherlands (82%) and New Zealand (80%). Further increases could be possible, in particular if macroeconomic conditions develop favourably and Ireland continues its policy efforts in terms of labour market policies.

Fluctuations in unemployment rates were even more pronounced than in employment rates (Figure 2.2). Starting from low levels before the GFC (around 5% for both men and women in 2006), the unemployment rate soared during the GFC and European debt crisis, reaching almost 18% for men in 2012 and almost 13% for women. Most of this increase resulted in long-term unemployment, moving a large number of people further away from the labour market and putting them at risk of loss of human capital/skills. In 2012, 12% of men and 6% of women in the labour force were long-term unemployed, in total about 200 000 people, bringing CE and other ALMPs targeted at long-term unemployed people to their capacity limits.

After the peak in (long-term) unemployment around 2012, the labour market situation started to improve gradually. Unemployment and long-term unemployment kept falling steadily for almost a decade, with temporary interruptions linked to the COVID-19 pandemic (see section 2.4). In 2022, the unemployment rate stood at just under 3.4% in Ireland, far below its peak level, and the long-term unemployment rate amounted to 1.5% for men and 1.1% for women, respectively, five times lower than in 2013. Nevertheless, despite these remarkable improvements, the long-term unemployment rate is still relatively high in Ireland compared to other OECD countries.

Figure 2.2. Long-term unemployment has been falling rapidly after its peak in the early 2010s

Wage levels are close to the OECD average, with an average real wage 1 in 2022 amounting to an equivalent of USD 52 200, against 53 400 in the OECD (Figure 2.3). Real wages had grown strongly in the early 2000s, from (an equivalent of) USD 39 800 in 2002 to USD 51 600 in 2012. Between 2012 and 2022, real wage increases were much lower, from USD 51 600 to USD 52 200. Both the GFC and the European Debt Crisis have largely contributed to lower wage growth over the last decade. While wages differ across sectors and skill profiles, income inequality is relatively low, notably due to a redistributive transfer system (OECD, 2020[2]; OECD, 2018[3]).

Figure 2.3. Real wage growth has been rather slow over the last decade

2.3. Some labour market disparities have improved while others persist

Ireland has made progress in reducing some labour market disparities. Most notably, gender differences are now smaller than in many other countries. The gender-wage gap has shrunk substantially over the last years, from 14.1% in 2010 to 7.3% in 2021, far below the OECD average of 12% (OECD, 2022[4]). In addition, 2022 employment rates for women are comparatively high and well above the OECD average (69% in Ireland against 62.3% in the OECD), while rates for men are 2.2 percentage points above the cross-country average (76.6%). Furthermore, the incidence of involuntary part-time work, which is a major problem for women in some countries, is low, affecting only 2% of employed women against 4.8% in the OECD (OECD, 2024[5]).

There are persisting disparities between individuals with high and low levels of education. The employment gap between people with high and low educational attainment in Ireland showed a 48 percentage points difference in 2022, which is more than in many other countries (40 percentage points in the EU), and especially when compared to other Northern European countries. The wide gap should be seen in the context of high education outcomes in Ireland, meaning that the share of people with low educational attainment has decreased over the last decades and is small compared to other countries. Nevertheless, people who are in the group of low-educated people often face major difficulties finding employment. For instance, in 2022, just over one-third (39%) of people with low educational attainment were employed in Ireland, against 46% in the EU (and 71% in Iceland) (Eurostat, 2024[6]). Furthermore, the disability employment gap in Ireland is among the highest in the OECD, pointing to significant employment barriers among this group and highlighting the need for effective support. Employment rate differences between people with disabilities and the overall population vary substantially within Ireland, suggesting that local factors play a role (OECD, 2021[7]).

Another labour market disparity relates to age. As in all other OECD countries, unemployment levels among young people are higher than for their prime-aged peers. As of 2022, 9.8% of youth aged 15-24 were unemployed in Ireland, against just 2.4% among persons aged 25-64. This gap of 7.4 percentage points is larger than on average in the OECD (6.5 percentage points), and far above the best-performing countries. For example, unemployment rates among persons aged 15-24 stood at only 4.2% and 6% in Japan and Germany, respectively, and were relatively close to unemployment rates among 25-64 year-olds (1.6% and 3.1%). OECD (OECD, 2024[5]).

These disparities are also apparent in the profile of long-term unemployed people. While long-term unemployment has been generally low in recent years, it affects some socio-economic groups more than others (Figure 2.4). In 2022, 3% of the labour force were long-term unemployed among the low-educated, against 0.8% among the high-educated. Differences across other dimensions (i.e. region, age, gender) exist, but are currently relatively small. At the peak of the European debt crises, disparities in long-term unemployment were much more visible. Among the low-educated, an extraordinarily large share – 15% of the labour force – were long-term unemployed in 2013, compared to 10% of the medium-educated and 3% of the high-educated. Similarly, long-term unemployment was more common among young people than among older age-groups, at 11% of the labour force among 15-24 year-olds, 8% among 25-49 year-olds and 7% among 50-74 year-olds, even though it should be noted that the high levels of third level education participation contribute to the high rates among young people. These disparities directly affect the composition of the target group of CE and hence the group examined in the remainder of this report.

Figure 2.4. Long-term unemployment affects low-educated people more than other groups in Ireland

2.4. Ireland’s labour market since the COVID-19 pandemic

The outbreak of the COVID-19 pandemic had repercussions on the Irish labour market, like in many other countries. Sectors with jobs requiring face-to-face interactions particularly suffered, such as hospitality, retail, and tourism. In these sectors, many businesses were forced to shut down or reduce their operations due to public health requirements in force at the time.

The pandemic did not lead to an immediate surge in unemployment, contrary to the situation in other OECD countries, but rather to a gradual increase (Figure 2.5), in part due to employment protection measures. Nevertheless, the increase in unemployment was strong, rising from 4.8% in February 2020 to 7.3% in September 2020. After a second spike in unemployment over the winter 2020/21, the situation started to improve steadily as COVID-19 vaccines became widely available and public health restrictions were eased. In November 2023, the unemployment rate stood at 4.8%, just below its pre-pandemic level (4.9% in September 2019).

Due to the improving labour market situation, coupled with limited labour supply, labour shortages started building up. Although the vacancy rate, i.e. the share of positions that are not filled, tends to be lower in Ireland than in other countries, it increased rapidly after 2020, from about 0.8% to above 1.5%, before starting to decline again (Figure 2.5). In Q2 2023, 1.2% of all positions were still vacant. One of the key challenges contributing to labour market tightness is the scarcity of skilled labour. With the economy performing well and the unemployment rate low, many companies are struggling to find workers with the right skills. In addition, the level of skill mismatch is high in Ireland, and 31% of workers are underqualified for their job, more than in any other country for which data are available.

Figure 2.5. COVID-19 had a strong, but short impact

In the years and decades to come, labour market shortages are at risk of intensifying. Ireland is ageing rapidly, and the share of people aged 65 and older is projected to grow from 15% in 2022 to 26% in 2050 (Figure 2.6). These ageing patterns are likely to put stress on public finances and could contribute to growing labour shortages. Nevertheless, Ireland’s working-age population is not expected to shrink over the next three decades, contrary to most other OECD and EU countries. As a result, Ireland may have more time than other countries to adapt to the profound societal and economic consequences of population ageing and take action to limit skills shortages. Against this background, the role of labour market policies will be ever more important, and it will be crucial to have ALMPs that support skills re-orientation and to ensure that public works schemes do not displace jobs and do not absorb people that could have filled open labour market vacancies.

Figure 2.6. Ireland is ageing rapidly, but its working-age population is projected to grow

References

[1] Central Statistics Office (2022), Population and Migration Estimates, https://www.cso.ie/en/releasesandpublications/er/pme/populationandmigrationestimatesapril2020/.

[6] Eurostat (2024), Eurostat database: Employmement rates by sex, age and educational attainment, https://ec.europa.eu/eurostat/web/products-datasets/-/lfsa_ergaed.

[5] OECD (2024), OECD Employment Database, https://www.oecd.org/employment/emp/onlineoecdemploymentdatabase.htm.

[4] OECD (2022), OECD Employment Outlook 2022: Building Back More Inclusive Labour Markets, OECD Publishing, https://doi.org/10.1787/1bb305a6-en.

[7] OECD (2021), Disability, Work and Inclusion in Ireland: Engaging and Supporting Employers, OECD Publishing, Paris, https://doi.org/10.1787/74b45baa-en.

[2] OECD (2020), OECD Economic Surveys: Ireland 2020, OECD Publishing, https://doi.org/10.1787/dec600f3-en.

[3] OECD (2018), Good Jobs for All in a Changing World of Work: The OECD Jobs Strategy, OECD Publishing, https://doi.org/10.1787/9789264308817-en.

Note

← 1. In terms of constant prices at 2022 USD and accounting for purchasing power parities.

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