Wednesday 17 January 2018

More work is needed - for the old and for the young

VOCATION: For many young people, the third-level route is not a realistic option. And for them, the State’s vocational training apparatus needs to improve radically
VOCATION: For many young people, the third-level route is not a realistic option. And for them, the State’s vocational training apparatus needs to improve radically
Dan O'Brien

Dan O'Brien

Unemployment is a scourge and Europe is scourged by unemployment. That much is well known. But the focus in political and popular discourse on the rate of joblessness - almost to the complete exclusion of what else is happening in the labour market - can be misleading. Nowhere is it more misleading than in the discussion of youth unemployment, more of which anon.

In order to better understand both short-term and long-term change in work (and non-work) patterns, it is helpful to look at a range of other indicators. In my view, the single-best measure is the proportion of adults who are working, known as the 'employment rate'.

The latest figures released recently show that in the second quarter of this year, employment rates in most European countries were stable or picking up, reflecting the effects of the (weak and weakening) recovery across the continent. Whether there is continued improvement in the short term will depend almost entirely on what happens to economic growth.

But looking more closely at these figures in Ireland and the rest of Europe shows that while demand for labour is crucial in determining labour market outcomes in the short term, many other factors are at play over the longer term. Of the interesting trends affecting the world of work, many of the most interesting are age-related. Two are worth highlighting.

First, fewer young people are working, mostly because they are investing in their futures by staying in education. Second, more older people are working, both out of necessity and because of lengthening lifespans, improved health and later retirement.

Consider the second group first, not least because their story provides the most positive trends. Discussion of lengthening lifespans is mostly focused on the challenges and downsides rather than the benefits. While it is right and proper to look at the policy consequences of any kind of change, demographic or otherwise, it can often be overlooked that increased longevity is an overwhelmingly positive thing - people are enjoying more life and, thanks to a range of technological advances, much of the additional life is healthy.

What are the implications for the jobs market? Historically, people began dropping out of the labour force quite quickly from their mid-50s, as those with the wherewithal to retire early did so and those unlucky enough to be incapacitated by ill-health or the ravages of the ageing process were forced to do so. The pace of withdrawal from the world of work has tended to accelerate when people get into their 60s and soars from 65, the age many countries fixed as their retirement age in the 19th Century.

But as the first chart shows, the trend almost everywhere in Europe is for later retirement, Ireland included. The proportion of all 55-74-year-olds at work has been on an upward march in this country, reaching to almost one in four in 2007. It fell back as the recession hit, but began rising again last year.

It is going in only one direction, for a number of reasons.

Increasing life expectancy and better healthcare allow people to remain in employment for longer, while ageist attitudes or practices are more likely to be challenged - although not enough according to a feisty seventy-something this columnist spoke to recently, who bitterly resented being sent out to pasture by legislative fiat.

But if some people hate the idea of forced retirement, most people do not welcome the pushing up of the retirement age. Despite that, the scale of the demo- graphic and associated budgetary implications are forcing governments to do just that, albeit very slowly, to avoid political backlash.

Ireland's political class cannot claim to be the most pro-active in the world, but it does deserve credit for moving faster than most other countries in preparing for the future, by raising the statutory retirement age to 68 by 2028.

The chart on the right illustrates a number of things. First, even older workers, who are always best insulated against lay-off thanks to the depth of their skills and breadth of their networks, are affected by short-term demand conditions. The employment rate of older workers has soared in Germany in recent years thanks to its almost uniquely strong overall labour market. Ireland and Greece, by contrast, has had some of the worst employment shocks ever recorded in developed economies. As a result, the progress made in the early years of this century in keeping older folk at work has been undermined.

The graphic also illustrates how stark the north-south gap is in Europe. As with most labour market indicators, the Nordics are the best performing when it comes to keeping older people contributing to wealth creation. Almost half of Swedes aged 55-74 work. Among Greeks it has never been much more than one in four. Now, owing to the depth of the depression suffered in that country, it is barely above one in five.

If there is a north-south divide among the elderly in the labour market in Europe, the gap is even greater among the young.

By way of preface, it is important to emphasise that the unemployment rate for the under-25s is not what we should be looking at because most young people are in education, and therefore not in the workforce at all (the unemployment rate misses these youths because it only measures those at work or actively seeking work). And the trend towards more people staying for longer periods in learning environments is as marked as the trend towards more older people staying in employment.

The best metric to understand how opportunities for young people are changing is the 'NEET' rate - the proportion of young people under 25 who are 'Not in Education Employment or Training'.

Stories of how hard it is for young people to find work in Spain, Italy and Greece are borne out in the comparative data on NEETs, with rates in those countries hovering around 20pc (far below the unemployment rate of 50pc in some cases, but still unacceptably high). By comparison, Ireland is doing better, at 16pc last year, down from a peak of 19pc in 2010.

But if Ireland has been keeping bad company on its NEET rate, the reason for that goes well beyond the very deep recession.

The NEET rate here has never dropped below 10pc, and has always been far above the best performers in northern Europe. This was the case even during the employment boom up to 2007, when jobs were easier to come by here than in almost any other economy. It was (and is) also the case despite Ireland having the highest share of young people in third level education in the EU28.

This highlights the need for the State's vocational training apparatus to improve radically. The NEETs cohort is disproportionately made up of those for whom the mainstream route of Leaving Certificate and third-level education is not a realistic option. As these kids are much more likely to come from poorer backgrounds, failure to do more will only cause a swelling in the numbers of families and communities where nobody works.

Ireland has a bigger underclass than is commonly recognised and the State has done far too little to address its growth.

Non-academic training is among the central planks in turning that trend around. If more is not done, don't be surprised if Ireland, in the future, experiences scenes of burning and rioting ghettoes.

Sunday Indo Business

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