Why regaining pre-Covid levels of employment will be difficult to achieve

The unemployment impact was unevenly spread; some sectors are suffering greatly such as hospitality, restaurants, pubs and hotels. Picture: iStock

There are several indicators of national economic performance. Internationally, Gross Domestic Product (GDP) which measures national output is the most widely used performance indicator. 

Because of various multinational enterprises’ and globalisation issues, GDP is not a good measure of Irish macroeconomic performance. 

The Central Statistics Office has created a more appropriate measure called Gross National Income (GNI) modified. In 2019 GNI modified was only 60% of the value of GDP; the 2019 volume growth rates were GDP 5.6% and GNI modified 1.7%.

Despite Covid, the 2020 GDP performance was a surprising increase of 3.4% but GNI modified declined by 4.2%. 

Recent economic projections from the Department of Finance present a reasonably good picture for both GDP and GNI modified growth. 

Annual GDP growth is forecast to be 4.5% in 2021 and 5.0% in 2022 while GNI modified will increase by 2.5% and 5.5%. This means that on an annual basis the economy will have more than regained its lost GNI modified by 2022. 

However, the economic story is less pleasant when employment and unemployment are considered. 

Before Covid, in Quarter 4 2019 total employment was 2.3612m persons. Of these, 1.8683m were full-time workers and 492.9k were part-timers. 

While 40% of the full-time workers were female, they account for 69.3% of the part-timers. 

The average 2019 employment level was 2.3225m. 

In response to Covid the Government introduced a new Pandemic Unemployment Payment (PUP) and wage subsidies to support employment.

As of April 2021, about 910k workers were covered by PUP, usual unemployment payments or wage subsidies.

The CSO publishes two measures of unemployment, its usual pre-Covid measure and a new measure that takes account of Covid-related temporary unemployment. 

In March 2021 the unemployment rate was 5.4% on the pre-Covid methodology. However, if all claimants of the PUP were classified as unemployed the unemployment rate rose to 24.2%.

On the Covid-adjusted measure, the unemployment rate for those aged 15-24 years was a staggering 59.2% — 54.0% for males and 64.7% for females. It should be noted that some of the PUP recipients would have had part-time jobs.

Average employment in 2020 was 1.972m, a decline of 351k jobs compared with 2019.

The Department of Finance expects employment to grow from 2021 but it will be 2023 before the 2019 level is regained. 

Employment should grow to 2.051 million in 2021, 2.276 million in 2022 and 2.351 million in 2023. The big jobs increase is expected between 2021 and 2022. 

The unemployment rate is expected to average 16.3% in 2021, drop sharply to 8.2% in 2022 and further decline to 6.7% in 2023. But the 2023 unemployment rate will still be higher than 2019. 

Of course, these are forecasts which may not be realised. 

It remains to be seen what the scarring effect of the pandemic has been and what will be the lasting impact on enterprise and consumer behaviour. 

For example, inward tourism may be very slow to return and main street retail will not get back to 2019 levels.

The unemployment impact was unevenly spread; some sectors are suffering greatly such as hospitality, restaurants, pubs, hotels, sports, entertainment, some retail, much of construction, hairdressers/barbers, and aviation.

Although some sectors of the economy are doing well during the pandemic, others, such as aviation, are suffering greatly. Picture: Leon Farrell / RollingNews.ie

Other sectors are doing well such as off-licences, supermarkets, online retail, health products and equipment, delivery/distribution services, technology products, and services.

The 2020 volume of national Gross Value Added increased by 4.4%. Industry increased by 15.2% and information and communication increased by 14.3%.

However, construction volume declined by 12.7%, distribution, transport, hotels and restaurants decreased by 16.7%, and arts, entertainment and other services decreased by 54.4%.

In 2020 national output increased but employment declined. This is because most of the workers affected by Covid closures and restrictions are employed in low productivity sectors such as hospitality. 

Some of the sectors which experienced growth such as pharmaceuticals are characterised by very high levels of productivity. 

Average value added per worker in foreign-owned chemicals was €1.153m in 2018 and in IDA supported foreign-owned information, communication, and other services it was €359k. 

However, value added per person in restaurants and public houses was €24k (including part-timers). The value-added output of one chemicals job is equivalent to the output associated with 48 jobs in restaurants and public houses.

Many enterprises may not survive the pandemic and consumers and enterprises will not fully return to pre-Covid behaviour. Consequently, it is optimistic to expect full restoration of the 2019 employment level. 

The Government are considering policies that will make job creation more difficult especially in low-wage, labour-intensive sectors. These include increases in employer and employee PRSI rates. 

Irish employer PRSI is lower than the EU norm. However desirable for revenue purposes, this would have an adverse impact on job creation in labour-intensive sectors. 

A living wage instead of the lower minimum wage is obviously desirable for low paid workers but it would probably have a dampening impact on job creation in some sectors. 

It is desirable to improve worker conditions in gig economy activities but this would decrease the demand for labour. 

These changes will make the job creation task more difficult. Government may be happy to accept the trade-off. The issue of a four-day week will also arise.

US and global profits tax policy may reduce the attractiveness of Ireland for foreign direct investment; this would have a negative impact on future direct and indirect job creation.

Government will need additional tax revenues to finance the ongoing larger public sector after the pandemic. Increased income taxes will reduce the take-home pay from a given wage and lead to pressure for higher wages. 

Higher indirect taxes increase the gap between price and enterprise revenue. Both taxes will negatively impact job creation.

The current forecast of employment regaining its 2019 level in 2023 will be difficult to achieve.

• Tony Foley is emeritus associate professor of economics at DCU Business School