EU WORKERS UNLIKELY TO FILL JOB VACANCIES THIS TIME

This appeared in the Irish Examiner 6th July 2018
There was a story out of Chicago this week that such is the extent of the labour shortages in that region of the US, employers are being forced to waive drug tests and hire ex-convicts in order to fill vacancies in what is now a labour market that is facing into the spectre of full employment. Ireland may not be too far from the same situation. Our labour market may soon become a victim of its own success.
Unemployment data this week showed that the rate of unemployment fell back to 5.1 per cent of the labour force in June, down from 16 per cent as recently as 2012. In the year to June, the level of unemployment declined by a massive 34,300 and 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 the skills and qualifications of those who remain unemployed, 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 an unemployment rate of 11.4 per cent for those aged between 15 and 24 years of age, with the male rate at 12.5 per cent and the female rate at 10.2 per cent.
The reality is that 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 issue of labour market shortages in many sectors that is likely to become a reality 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 this is 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 through offering higher wages and better packages. This would obviously be good for the workers involved 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 show that economic activity is continuing to drive strong growth in tax revenues. The total tax take was €168 million higher than expected by the Department of Finance, but more importantly was €1.3 billion ahead of the first half of 2017. Income tax receipts accounted for just over 39 per cent of total tax revenues, which is up from 27 per cent just over a decade ago. Corporation tax receipts are also continuing to grow strongly, with €4 billion collected in the first half of the year. This represents a growth rate of 14.6 per cent. 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 per cent, with health spending up by 8.7 per cent and €167 million 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 services, which in itself will be expensive. However, there is now the added complication that the evolving labour market is likely to make it more difficult to recruit and retain workers in the public sector, and labour costs will inevitably rise strongly if services are to be maintained, not to mention improved.
Despite the positive complexion, the challenges facing the Minister for Finance in managing these issues are immense. Unfortunately, there are no easy answers.