EU workers unlikely to fill jobs vacancies this time

There was a story out of Chicago this week that such is the extent of labour shortages there, that employers are waiving drug tests and hiring ex-convicts to fill vacancies as the region heads towards full employment.

Ireland may not be too far from the same situation. Our labour market may soon become a victim of its own success.

This week, data showed that the rate of unemployment fell back to 5.1% of the labour force in June, down from 16% as recently as 2012.

In the year to June, the level of unemployment declined by a massive 34,300. Since the peak of unemployment, in early 2012, there has been a decline of 235,700.

There are now officially 120,200 people unemployed in the economy. We don’t have information on their skills and qualifications, but it is probable that many are low-skilled or do not have the requisite skills to fill the vacancies in the labour market.

Youth unemployment is a problem, with a rate of 11.4% for those aged between 15 and 24 years of age, with the male rate at 12.5% and the female rate at 10.2%.

Once we go below the 100,000 level, it will require very focused labour market intervention policies to bring those mostly long-term unemployed people back into paid and meaningful employment.

Such interventions are socially and economically desirable, but they will not solve the labour market shortages that are likely in the not-too-distant future.

The last time the economy approached full employment, many of the jobs were filled by workers from the EU accession states.

Those states have now attained much higher levels of economic activity and opportunity, so they are unlikely to provide a source market for labour.

In any event, even if we could source migrant labour, there is the issue of where they would be housed and how our already-stretched public services — such as health and education — would accommodate an inflow of labour.

In the face of these challenges, employers will be forced to do what they did back in the early 2000s — compete for labour by offering higher wages and better packages. This would obviously be good for the workers, but would not be particularly helpful for the competitiveness of the economy.

This labour market reality is likely to act as a constraint on economic growth, but it will also feed into the public finances. This week, the exchequer returns for the first half of the year showed that economic activity is continuing to drive strong growth in tax revenues.

The total tax take was €168m higher than expected by the Department of Finance, but, more importantly, was €1.3bn ahead of the first half of 2017.

Income-tax receipts accounted for just over 39% of total tax revenues, which is up from 27% just over a decade ago. Corporation-tax receipts are also growing strongly, with €4bn collected in the first half of the year.

This represents a growth rate of 14.6%.

The increasing dependence on possibly transitory corporate-tax receipts is an issue we should think long and hard about.

It is all good on the revenue side, but the expenditure side does give cause for concern.

Expenditure on the day-to-day running of the country increased by a strong 6.7%, with health spending up by 8.7% and €167m ahead of expectations.

The problem on the spending side is that there is intense political and popular pressure to improve the quality and quantity of public service, which in itself will be expensive.

However, there is now the added complication that the evolvinglabour market is likely to make it more difficult to recruit and retain workers in the public sector, andlabour costs will inevitably rise strongly, if services are to be maintained, not to mention improved.

Despite the positive complexion, the challenges facing the Finance Minister for Finance, Paschal Donohoe in managing these issues, are immense.

Unfortunately, there are no easy answers.