Strong inflows of foreign direct investment have been a key factor behind the extraordinary growth in output, exports and employment enjoyed by the Irish economy in the past couple of years. Recent announcements of job losses at US technology companies with significant operations in Ireland have sparked concerns about the health of the sector, as well as the prospects for continued inflows of new investments, at a time of a downturn in the global economy.
A survey of American Chamber of Commerce members in Ireland provides reassurance in this regard. It shows that over 60% of US companies based in Ireland expect to expand their workforces in the coming year, while just 4% of companies expect to shrink employee numbers. A key challenge may be sourcing these workers, especially with the IDA reporting a good pipeline of investments for 2023.
A clear headwind to Irish growth prospects, though, is the emerging capacity constraints in the economy. The American Chamber survey reveals that companies’ biggest concerns are around the shortage of housing, unwieldy planning system, energy supply and costs, and the availability of labour.
In regard to the latter, the results of the Labour Force Survey published by the Central Statistics Office reveal clear signs of capacity constraints in the labour market. It showed that the unemployment rate remained at a 20-year low, below 4.5%, in the third quarter.
Meanwhile, the sharp pick-up in the rate of labour force participation which rose from 62.2% in 2019 to 65% by the end of 2021 has levelled off, and edged lower to 64.7%, as growth in the labour force slowed down.
The labour force has expanded by just 16,000 in the past two quarters. In year-on-year terms, the labour force grew by 53,000 in the past year. However, the number of Irish citizens in the labour force fell by 14,000 over this period, while the number of non-Irish citizens increased by 67,000, including 55,000 non-EU citizens. Ireland has become heavily reliant on non-EU workers to fill job vacancies.
Labour shortages may be partly the reason why variations in the numbers employed are starting to emerge across different sectors. The past year has seen strong growth in employment in industry, construction, information and communications technology, and health care. By contrast, the numbers employed have fallen in agriculture, hospitality and financial services.
It would seem then that the labour market is facing a squeeze from all directions. Unemployment has fallen to very low levels, the surge in participation has levelled off and may even be starting to decline, while the part of the labour force comprising Irish citizens is now shrinking despite favourable demographics.
Overall, the jobs harvest may be rich, but the labourers are few, leaving the Irish economy very reliant on workers from overseas. These now constitute nearly 20% of the employed workforce in Ireland.
Oliver Mangan is chief economist at AIB