The Irish Economy: Why Labour Matters

‘Keep calm and carry on’ has long been the mantra of the UK in times of crisis. While Ireland lacks a slogan as iconic as this, recent shocks have been met with considerable ‘mettle’. In the face of a global pandemic and war in Ukraine, the economy has proven remarkably resilient, especially the labour market which is an important confidence factor for consumer spending.

The level of employment is now at a record high, and the unemployment rate is around historic lows, meaning current labour market conditions are what economists refer to as ‘tight’.

For employers, this makes for reduced choice and greater difficulty in filling vacancies. Research carried out by EY among Irish CFOs earlier this year gives a sense of the constraints in this respect - some 44% identified talent shortages and talent retention as a key challenge to achieving their growth ambitions in the next five years

The outlook for the Irish economy is continued expansion and job creation in the near term though, even as global uncertainty in the tech among other sectors and more restrictive monetary policy generate headwinds. The question then is how future demand for labour can be met?

Actions to bolster supply

Measures to boost the labour force are going to be key. Population increases and inward migration will continue to have a role to play. There is also scope to raise the participation rate, among some groups in particular, albeit this is more limited than before.

In contrast to the situation in the UK, the aggregate participation rate in Ireland stands above its pre-pandemic reading. This owes much to higher female participation which, in turn, owes in no small part to the rise in remote and hybrid working arrangements that has taken place in the last few years

What can organisations do?

Attracting and retaining workers when labour market conditions are tight, as is the case in many countries at present, is no mean feat. Approaches will differ depending on organisations’ preferences and business needs, but a few points for the general consideration of employers include:

• Offering flexibility – giving people a say in how, when and where they work will help,
  
• Upskilling and investing in talent – of the Irish CFOs surveyed by EY, 40% said they are prioritising the upskilling of  existing talent in the coming year, while 34% are investing in new talent,
  
• Thinking outside the box - look to harness untapped labour potential by increasing support for diversity and inclusion policies
  

In summary, the shocks of recent years have had a big impact on our economies and the world of work. And while the Irish labour market has undoubtedly shown its mettle in response, adjustment is still ongoing. Some of the changes to date may prove transitory, whereas those that yield tangible benefits for employers and employees are likely to persist, with longer lasting implications.

Contribution to Marks Sattin Report, May 2023 Loretta O’Sullivan - Chief Economist, EY Ireland

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