THIS ARTICLE APPEARED IN IRISH EXAMINER MARCH 1st 2019
After another eventful week in the UK it now appears possible that we are moving gradually towards some semblance of a soft deal on the Brexit front, or at least the prospect of a cliff-edge Brexit is possibly waning. March 13th will be a big day in that regard, but we can probably now afford to possess some sense of optimism than for some time. Of course such is the balminess of the UK political system at the moment, there is still potential for a shock, but the risks are declining due to the fact that some sane politicians who are committed to the greater good of the UK than their own selfish interests are at last starting to exert some muscle. It took a while, but better late than never. However, it would be naïve to under-estimate the skullduggery of the Brexiteers.
Hopefully, the avoidance of a hard-Brexit will give a significant boost to sterling and indeed to the UK economy. Both of those outcomes would be good news for the Irish economy and particularly for the very important agri-food and tourism components of the indigenous economy. Hopefully, not too much longer-term damage has been done to the UK economy by the lunacy that has characterized the country since June 2016. Some manufacturing activity will have been permanently lost, but hopefully other sectors will compensate. We need to be clear that a strong UK economy and a strong currency are undoubtedly in the best interests of the Irish economy.
The Irish labour market in general would benefit further from a stronger UK economy and from the boost to Irish exports that would result from a stronger UK currency, on both the services and the goods side of the export sector. Such a boost to a labour market that is already performing very strongly could be a double edge sword in the sense that it would serve to exacerbate the likelihood of labour shortages and retention and recruitment difficulties in both the public and private sectors of the economy. However, this would still be a better outcome than the employment shock that would definitely result from the UK crashing out of the EU without a deal.
The latest labour market data relating to the final quarter of 2018 shows that employment increased by 50,500 or 2.3 per cent in the year to December to reach 2.28 million, which is the highest level of employment ever recorded in the Irish economy. The annual growth rate did slow from a rate of 3 per cent in the previous quarter and 3.1 per cent a year earlier, but rather than interpreting anything negative, this probably reflects a combination of Brexit induced caution and recruitment difficulties in a labour market that is definitely tightening.
Following the crash in 2008, few believed that the Irish labour market would rebound in the manner that it has. 2012 was the low point of the employment market, and in the six-year period to the final quarter of 2018, overall employment has increased by 387,700 or 20.5 per cent. Over the six-year period all sectors, with the exception of agriculture, recorded growth in employment. The construction sector leads the way with an increase of 58,900, and the accommodation and food services sector came a close second, with an increase of 52,000. The total at work in agriculture declined by 2,900, which is indicative of difficulty recruiting, difficult trading conditions for some components of the sector, particularly beef, and the automation of farming in general, but the dairy sector in particular. All in all it is a positive labour market story, but one that will undoubtedly present its own challenges over the next couple of years as wages rise and recruitment and retention challenges start to become more acute.
At the annual conference of central bankers in Jackson Hole Wyoming last August, the main theme was the failure of virtual full employment in the US to translate into wage pressures. According to the minutes of the last meeting of the European Central Bank, a similar theme was explored in relation to the Euro Zone. The breakdown in the transmission of employment growth into wage growth is puzzling central bankers. Interestingly, in Ireland the latest data show that average weekly earnings increased by 4.1 per cent in the year to the final quarter of 2018. Wage pressures are starting to build here and a soft-Brexit will likely exacerbate those pressures.