Training the long-term unemployed taking centre stage
No discredit to Finance Minister Paschal Donohoe but this, his first proper budget looks set to be quickly forgotten.
As usual, the critics have piled in. One did hit the mark in describing it as the ‘cup of coffee’ budget, an allusion to the rather modest social welfare increases and tax cuts doled out, just enough for a large weekly latte.
Economists across Ireland are quietly celebrating. The budget was largely neutral in effect, though much may depend on just how realistic are the targets for collection of the higher stamp duty on commercial property transactions. Let’s just hope that we are prepared for the rainy day eventuality of a hard Brexit.
Amid the budgetary furore, a few key matters emerge. We are struggling to cope with the effects of sustained economic growth. The Minister has sought to address this with modest tweaks to the tax system aimed at encouraging those at work. Amid signs of a tightening labour market, there is comment about Ireland’s low rate of labour participation.
More workers are certainly needed in the right places if emerging bottlenecks are to be tackled. This is particularly the case in the area of residential housing.
The provision of more housing now has top priority in Government, but could a lack of available skills hamper provision even if the necessary finance is made available?
Consultants DKM estimated last November that the construction sector would require 112,000 extra workers by 2020. The Construction Industry Federation (CIF) believes that the figure is now higher given an increased demand for houses since this report was prepared.
According to the CIF, a total of 50,000 will before long have been hired by the industry from the Live Register. This is having a big impact on the jobless figures.
The number of males signing on dropped from just over 180,000 to 151,500 in the year to July.
This is a real game changer. However, a CIF spokesman, Shane Dempsey, warns that the availability of new people is likely to plateau at this point. The industry will have to go elsewhere, probably overseas, to fill the gap.
The industry may also be impelled to alter some of its traditional building methods, boosting labour productivity in the process. The sector has been working with the Education and Training Boards to provide short term courses for teenagers, in particular. In his view, there needs to be a concerted national effort to attract more people from among the 65,000 people on the Register with construction skills.
Many have been out of work for two years or more and will require retraining. The squeeze on the availability of rental property is acting as a restraint on supply both local and overseas.
According to think-tank Tasc, poor wages and conditions in the building trade are also playing a part in restricting labour supply. Firms have been hollowed out during the recession. There is a severe backlog in the supply of apprentices following a ten-year long downturn.
Just over 1,500 registered for apprenticeships in the trade in 2016, a small fraction of peak levels in 2007.
Mr Dempsey at CIF agrees that the industry is fragmented and that smaller traditional residential firms have not shared in the construction recovery, and remain undercapitalised. Seven in ten regional SME construction firms have not been able to get loans from lenders up to now. Few are in a position to pay the proper rate for the right skills. There are signs that finance is being made available, but it is a slow process. The establishment of the new housing finance agency should make a difference.
A 10% increase in wages has been sanctioned by the Labour Court. While employers may baulk at the recommendation, it should help the business to attract skills.
The industry looks set to increase its resort to the old reliable: Labour from eastern Europe.
Recent efforts to tap the Irish diaspora have been largely unfruitful. Many of those who left for places like Canada and Australia now have families and decent lifestyles. They pay lower taxes, earn more, and enjoy good lifestyles though some may be minded to return home as their children reach secondary school. Brexit effects may serve to boost immigration from elsewhere in the EU, though to date there is limited evidence that this is occurring.
Labour supply bottlenecks are emerging across the economy in a repeat of patterns in the period 1995 to 2000 when unemployment also fell dramatically in a fast-growing economy. The situation at that time was badly mishandled.
While the usual suspects like IT and accounting are experiencing skills shortages, new pressure points have emerged. Teagasc has warned that dairy farms may need 6,000 new employees in the next decade — how a hard Brexit would impact on this situation remains to be seen.
There is much talk about Ireland’s low labour participation rate. Much of this commentary is based on analysis of those aged 15 to 60, which shows that Ireland is indeed an outlier, with a much lower proportion at work, but this is in large part due to high rates of participation in education. Tony Donohoe, Ibec’s head of training and social policy, believes that it is far better to focus on participation rates for those between 25 and 64.
Eurostat data shows that male participation stands at 85.7%, just under the EU average of 86.3%. In the case of females, the gap is a little higher: The EU participation rate of 74% whereas that for Ireland is just over 69%.
There may be scope to narrow the gap in female participation through, for example, access to more affordable childcare. One of the key challenges will be to boost the quality of participation, so that Irish workers and would-be workers are best equipped to be productive and adaptable in what is set to be a rapidly-altering jobs market. Mr Donohoe at Ibec believes that real progress is being made in the area of public training provision, as reforms begin finally to take effect on the ground. This is a topic — a vital one — for another day. What is clear is that innovative approaches such as the provision of subsidised accommodation for workers travelling long distances to construction sites will be required if current bottlenecks are to be tackled.
There may also be a case for boosting labour availability by offering more craft-based apprenticeships with decent portable qualifications to young people who might otherwise remain in full-time education.
The drop over the past four years in the official rate of unemployment to below 5% represents a real achievement along with the increase in the numbers in full-time employment. Between the second quarter of 2016 and the same period this year, the numbers in full time employment rose by 110,000 to just over 1.63 million.
The numbers on the Live Register remain significant. Just under 275,000 were signing on in July, an annual decrease of 44,600.
The key figure to watch is the number of long-term claimants. Here, the drop is almost 30,000 in just one year. The construction sector is in ramp-up mode, but a shortage of key skills threatens to derail plans to ramp up housing output while bidding up costs.
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