Category Archives: labour force

30/11/18: Ireland’s Dependency Ratio Problem?

Ireland seems to have a twin dependency. or rather a triple dependency problem:

  • Younger population means larger share of population is either below the working age or in education;
  • Older population largely working less in their post-retirement age due to a number of factors, such as family/household work (‘grandparents duties’ in absence of functional childcare and early education systems), and tax effects (low thresholds for the upper marginal tax rate application act as disincentive to supply surplus labor over and above retirement income), plus the workplace practices and regulations that restrict post-retirement age work; and
  • Working-age adults in large numbers drawing various forms of allowances (labor force participation rate being low for Ireland despite a relatively benign unemployment statistics).

All of which means that the aggregate (and very broad) dependency ratio for Ireland is yet to recover from the decade-old crisis, and is below that for other small, open economies, for example, Iceland:

The latter observation was true before the crisis, but the onset of the GFC and the Great Recession have pushed Ireland’s employment to population ratio to such dire lows that the country is yet to recover from its woes. Iceland recovered its pre-crisis levels of employment to population ratio back in 2016. It also endured much less pronounced impact of the crisis in terms of ratio decline (peak to trough) and duration of the peak-to-peak cycle. Ireland is still climbing out of the mess, and the rate of recovery is expected to slow down dramatically in 2018 (based on the IMF data).

While many observers and analysts are quick to discount this ratio, the reality is that economy’s resilience to shocks, its productive capacity today (and, via on-the-job training, learning by doing and other forms of career-linked investments in productivity growth, its future capacity) are determined by how many people work in the economy per capita of population. The lower the ratio, the less income producing capacity the economy has, the lower the absorption capacity of the economy in the face of adverse shocks.

20/6/18: Irish Labour Force Participation Rate: Persistency of a Problem

With the latest CSO data reporting on labour force participation figures for 1Q 2018, time to update the chart showing secular decline in the labour force participation rate in the country since the start of 2010:

As the chart above shows, despite low and falling unemployment, Irish labour force participation rate remains at the lows established at the start of 2010 and is not trending up. In fact, seasonal volatility in the PR has increased on recent years (since 1Q 2016), while the overall average levels remain basically unchanged, sitting at the lowest levels since the start of the millennium.

Taking ratio of those in the labour force to those outside the labour force as a proximate dependency indicator (this omits dependency of children aged less than 15), over 2000-2004 period, average ratio stood at 1.685 (there were, on average, 1.685 people seeking work or employed for each 1 person not in the labour force). This rose to 1.895 average over 2005-2009 period, before collapsing to 1.630 average since the start of 2010. Current ratio (1Q 2018) sits at 1.600, below the present period average.

While demographics and education account for much of this, overall the conclusions that can drawn from this data are quite striking: per each person staying out of the labour force for various reasons, Ireland has fewer people working or searching for jobs today than in any comparable (in economic fundamentals terms) period.

24/3/18: Dysfunctional Labour Markets? Ireland’s Activity Rates 2007-2016

Having posted previously on the continued problem of low labour force participation rates in Ireland, here is another piece of supporting evidence that the recovery in unemployment figures has been masking some pretty disturbing underlying trends. The following chart shows labour force Activity Rates reported by Eurostat:

Note: per Eurostat: "According to the definitions of the International Labour Organisation (ILO) the activity rate is the percentage of economically active population aged 15-64 on the total population of the same age group."

Ireland’s showing is pretty poor across the board. At the end of 2016, Irish labour force activity rate stood at 69.3%, or 16th lowest in the EU. For Nordic countries, members of the EU, the rate stood at 71.2, while for Norway, Switzerland and Iceland, the average rate was 78.2.

Over time, compared to 2007-2008 average, Irish activity rate was still down 1.6 percentage points in 2016. In the Euro area, the movement was up 2 percentage points. Of all EU countries, only two: Cyprus and Finland, posted decreases in 2016 activity rates compared to 2007-2008 average.

For an economy with no pressing ageing concerns, Ireland has a labour market that appears to be dysfunctionally out of touch with realities of the modern economy. In part, this reflects a positive fact: Ireland sports high rates of younger adults in-education, helped by our healthy demographics. However, given the structure of Irish migration (especially net immigration of the younger skilled workers into Ireland) and given sky-high rates of disability claims in Ireland, the low activity rate also reflects low level of labour force participation. In this context, younger demographic make up of the country stands in stark contradiction to this factor.

According to Census 2016, "There was a total of 643,131 people with a disability in April 2016 accounting for 13.5 per cent of the population; this represented an increase of 47,796 persons on the 2011 figure of 595,335 when it accounted for 13.0 per cent of the population." (Source: However, "Of the total 643,131 persons with a disability 130,067 were at work, accounting for 6.5 per cent of the workforce. Among those aged 25-34, almost half (47.8%) were at work whereas by age 55 to 64 only 25 per cent of those with a disability were at work." Another potential driver of low economic activity rate in Ireland is the structure of long term care within the healthcare (or rather effective non-existent structure of such care), pushing large number of the Irish people of working age into provision of care for the long-term ill relatives.

Here is the OECD data (for 2016) on labour force participation rates: