Irish unemployment rises despite strong employment growth

The latest data on the Irish labour market, from the Quarterly National Household Survey  (QNHS) in q2, shows that employment is stronger than generally thought, but that the labour force is also growing rapidly again, boosted by a return to net immigration, with the result that the numbers unemployed actually rose marginally, keeping the unemployment rate unchanged over the first half of the year.

Employment has been growing steadily now for some time and the second quarter saw an acceleration, with the numbers at work rising by a seasonally adjusted 20,000, following a 16,000 rise in q1.  That increase brought the annual rise to 56,000, or 2.9%, and the seasonally adjusted employment figure above two million for the first time since early 2009. Over the past year most industries have created jobs, notably construction ( 11,000) and manufacturing (9,000), although there was some  modest job losses in financial services and (surprisingly)  professional and scientific services.

The labour force in Ireland contracted sharply during the recession and has been slow to recover, although that now appears to be changing, with a 22,000 rise in q2, bringing the annual increase to some 33,000. The participation rate has picked up but a big factor in Ireland’s case is migration. We now know from the 2016 census that net emigration since 2011 was much lower than thought, and   the CSO’s latest estimates  show a return to net immigration in the year to April 2016. Emigration is still high , at 76,000, but immigation has picked up, to 79,000, giving a net 3k inflow. Most immigrants are still from outside the EU (32,000) but the past year has seen a rise in  returning Irish migrants, with a 10,000 increase to 21,000.

The CSO publishes a monthly unemployment figure which is often revised following the QNHS release, and that is indeed the case on this occasion. The unemployment rate has been revised down in q2, to 8.4% from 8.7%, but that is now unchanged from the first quarter, with the numbers unemployed now revised up. Indeed, the unemployment figure in the second quarter, at 183,000, is  actually 1500 higher than in q1.

Overall, the figures indicate that the economy is in better shape than indicated by the first quarter GDP figure ( which showed a contraction) and that household incomes are being supported by strong employment growth. Yet they also highlight an issue we have consistently  flagged of late- the growing signs of significant capacity constraints. Migration has turned positive again, population growth has picked up and the labour market has tightened,  putting pressure on existing resources in housing, health , education and  the infrastructure. There is a clear case then for additional government spending in these areas, particularly when the cost of borrowing is so low, yet existing fiscal rules mean that the State’s room for manoevre is limited.