Friday 14 December 2018

Dan O'Brien: Jobs figures raise as many questions as they answer

As a result of the inclusion of a higher population baseline, there was an upward revision to the number of people at work in the economy by more than 100,000. Photo: Stock image
As a result of the inclusion of a higher population baseline, there was an upward revision to the number of people at work in the economy by more than 100,000. Photo: Stock image
Dan O'Brien

Dan O'Brien

Last week, the most important indicator on the economy was published. The latest quarterly slew of jobs market data was of particular significance. That was the case for number of reasons.

First, the population baseline for the CSO's survey included the 2016 census data for the first time.

This is important because its demographers had significantly underestimated population growth over the previous five years.

As a result of the inclusion of a higher population baseline, there was an upward revision to the number of people at work in the economy by more than 100,000.

Second, the way the figures were collected was changed.

A new 'Labour Force Survey' replaced the 20-year-old 'Quarterly National Household Survey'. This brings Ireland closer into line with the methodology used across much of the rest of Europe. Any comprehensive change in how surveys are conducted inevitably bring about some changes in the results.

Finally, the publication was significant because it was much delayed. The release came two months later than usual.

To go five months without have any new figures on the economy's most important metric leaves a gap in observers' understanding of what is happening. That led to some uncertainty about labour market conditions, and conditions in the wider economy.

Unfortunately, that uncertainty has not been entirely eliminated by the release of new jobs data. The figures published last Tuesday look odd in a number of ways. They showed a second consecutive quarter of employment growth well below the rates that have been recorded over the past half decade, around 1pc every three months.

In the July to September period last year, the numbers work grew by 0.5pc over the previous three month period. That followed near stagnation in the second quarter.

Given how most other economic indicators pointed to very solid economic growth during the spring, summer and early autumn, my hunch is that the big changes to the survey method and the incorporation of census data have messed up the stats.

That is reflected in a few odd-looking numbers, as shown in the accompanying chart. According to the new figures, the rate at which the working-age population is growing slowed from the end of 2016. Coinciding with that development was a year-long period of stagnation in the number of people in the labour force.

Given that Ireland experienced a baby boom from 1995, and these young people are now reaching maturity, one would think that the working-age population would be growing faster, not more slowly. It would certainly not point to a workforce that is stagnating.

One explanation could be migration. Ireland has an extraordinarily mobile labour force by international standards, with one of the highest proportions in the world of people born here living abroad and one of the highest-in-Europe shares of non-nationals in the resident population.

If net inflows of people have tailed off recently, this could explain the growth slowdown in employment, the labour force and the broader adult population.

It is plausible that the much-talked-about housing problem has started to have an impact on migratory trends, with shortages and higher prices cutting the numbers arriving and pushing more people to head to foreign shores. But a range of other indicators don't point in that direction, including rent and property price inflation trends over the past 18 months.

As the chart shows, there was a comparable dip in growth rates of all three relevant labour market measures - employment, labour force and total working age population - in the early stages of the recovery back in 2014. That turned out to be a blip. It could well be that the recent downturn in all three measures is another blip, or the result of changes to the survey mentioned above.

Some other trends from last week's data are also worth highlighting. One is the decline in early retirement.

When figures were first collated 20 years ago, only one in three people aged 60 to 64 were in the labour force (that includes both employed and unemployed).

A full two-thirds of pre-retirement age sixty-somethings were 'inactive', to use labour market economists' jargon, or not in the labour force at all.

Among the slightly younger cohort, aged 55 to 59, only half were still involved in the world of work in the late 1990s.

Strong upward trends have been recorded since, in both cohorts. As of the third quarter of last year more than half of 60 to 64-year-olds were participating in the world of work, well above the EU average of 40pc.

Among those in the second half of their 50s, the share had jumped to 70pc, in line with average across the continent (but well below the best performers, Sweden and Denmark).

This trend is to be seen across the rest of Europe as people live longer and healthier lives (and that is happening in Ireland too, despite much negative comment about hospitals and healthcare more generally).

It is also being driven by policy changes. Pension systems are pushing out the age of retirement and in many cases seeking workers to contribute more.

In those developed countries where pension systems are funded - mostly in northern Europe and the English-speaking world - there has been a shifting of risk to individuals and away from providers.

As people face more uncertainty about how much they will get back from their pension pots, they are paying more in.

That involves resisting the temptation to withdraw from the world of at a younger age.

The trend is going only one way. The prospect of retiring while still relatively young and enjoying decades of life on a pension is one only the richest will enjoy in the future.

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