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: http://www.cso.ie/en/media/csoie/newsevents/documents/census2016summaryresultspart2/Census_2016_Summary_Results_%E2%80%93_Part_2.pdf) 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:

Source: https://data.oecd.org/emp/labour-force-participation-rate.htm.