COMMENT: Irish Jobs market is slowly moving in right direction

Ireland’s political landscape has become very difficult over the past year as the government has become embroiled in a number of controversial issues that have seriously damaged its standing in the opinion polls.

Much attention has been focused on issues such as water charges, the setting up of Irish Water, the Seanad nomination process and events in the Department of Justice.

This is unfortunate, because it has distracted attention away from issues that really affect the lives of people, particularly the management of the economy.

It has also distracted attention from the fact that over the past year the economy has been experiencing a reasonably solid economic recovery.

In my view the success or failure of the current government should be judged at the end of its term of office by the number of people in meaningful employment in the economy.

When elected in the first quarter of 2011, the seasonally adjusted level of employment stood at 1,855,600. The latest data show that in the third quarter of this year, employment totalled 1,916,900, representing an increase of 61,300.

The unemployment rate declined to 10.9% of the labour force in October 2014.

After the Irish economy collapsed towards the end of 2007, the main effects were felt in the labour market.

The unemployment rate stood at 4.5% at the beginning of 2007, but soared to peak at 15.1% of the labour force early in 2012.

Between the first quarter of 2008 and the first quarter of 2012, the number of people in employment declined by 321,000, representing a fall of almost 15%.

The latest employment data from the CSO’s Quarterly National Household Survey show that in the year to the end of September, total employment in the economy increased by 27,700, representing an annual growth rate of 1.5%.

Of the 14 sectors covered by the CSO statistics, 10 showed an annual increase in employment, with just four showing a year-on-year decline.

The four sectors showing a decline were Agriculture, Forestry and Fishing (-900), Industry (-3,200), Transportand Storage (-700), as well as ICT (-2,700).

The Construction sector showed an increase of 7,000; the Wholesale and Retail Sector increased by 1,900, which is the first increase in some time; the Accommodation and Food Services sector showed a further increase of 2,100, reflecting a strong tourism season and the lower VAT rate for that sector; and the financial sector showed an increase of 1,600.

Of the 27,700 jobs created in the year to the end of September, 26,100 were full-time jobs and just 1,500 were part-time jobs.

The number of employees increased by 21,200, with the remainder accounted for by the self-employed.

The latest employment data show that the labour market continues to improve on the back of the stronger economy. The employment increases are broadly based from a sectoral perspective. The pace of growth in employment is moderate rather than dramatic, but given the many issues and challenges that business in particular and the overall economy in general are still working through, it was never going to be any different.

The important thing is that the labour market is improving and policy makers need to ensure that they do whatever is necessary to keep this going. It is important to remember that meaningful job creation can solve many social and economic problems.

Looking out over the coming year, it is probable that the labour market will continue to improve provided domestic policy making is sensible. The IDA continues to achieve considerable success in attracting foreign direct investment into the economy. At the end of 2014, IDA supported companies supported 166,184 jobs directly in the economy and another 116,000 jobs are estimated to be supported indirectly. 2014 looks like being another record year for the state agency.

Foreign direct investment remains a very important part of the Irish economic model but there is no room for complacency. Political stability and a competitive cost base will be essential ingredients for continued success in attracting overseas investment and jobs over the coming years.

Of the domestic sectors, the agri-food sector also continues to do very well and exports in 2014 could come close to another record level of 11 billion. The broad tourism sector is also doing very well and the sensible decision to maintain the lower VAT rate should continue to support the sector in 2015. Construction activity is also picking up strongly and this sector should see a further increase in employment over the coming year.

The auto sector has generated considerable employment over the past year and a further increase in car sales and employment look likely in 2015.

The key area of vulnerability in the economy remains any business interfacing with a still pressurised personal sector.

The hope over the coming year is that Budget 2015 will give some boost to incomes, but it is also probable that many sectors will see some upwards drift in wages, which would support consumer spending.

All economic indicators are suggesting that the recovery is reasonably strong and is continuing to gather momentum.

Notwithstanding the ongoing impact of the patent issue, exports are doing well; construction and housing activity is strengthening, particularly in the Dublin area; manufacturing output is strong; and car sales are making a significant contribution to the recovery in retail sales.

The main caveats to this upbeat assessment are that excluding car sales, consumer spending is still fragile; many aspects of activity are coming off a very low base and growth rates are somewhat exaggerated; and the recovery has been concentrated in the Greater Dublin Area, although there is emerging evidence that the recovery is spreading.

Despite these caveats, the economy is doing well, and considerably better than anybody would have predicted just two years ago.

The key risk factors and challenges facing the economy as it seeks to build on the recovery momentum can be summarised as follows:

n The Euro Zone economic outlook is still very weak and very uncertain;

n The high level of sovereign debt will act as an impediment to growth due to high serving costs and will have to be reduced over the coming years;

n High level of SME debt;

n Credit availability for the SME sector is still very problematical;

n Personal debt and particularly mortgage arrears are very significant factors impinging on the personal sector;

n The ongoing pressure on personal disposable and discretionary incomes; and

n Political developments – an election must be held before the end of February 2016.

There is no guarantee that a stable government will be possible due to the growing proliferation of Independents. Political stability has been a key factor in selling Ireland to investors in recent years.

This is a source of concern because political instability can often result in poor policy making, with long-term negative consequences.

While the Irish economy still has many challenges to work through, the future does look brighter than for some time.

Maintaining the positive momentum in the country’s labour market is essential and must not be sacrificed on the altar of political opportunism.

All stakeholders should remember that maintaining a pro-business policy environment is essential for employment growth, which in turn will generate the resources to fund social and other forms of government expenditure.

The employment increases are broadly based from a sectoral perspective. The important thing is that the labour market is improving and policy makers need to ensure that they do whatever is necessary to keep this going