The NI labour market has strengthened but there's no room for complacency

By Conor Lambe, Economist at Danske Bank

The labour market is the part of the economy that people can most relate to. When things are going well people are buoyed by job security and, hopefully, strong real wage growth. When the economy experiences a downturn, it is in the labour market that people feel it the most. Individuals can lose their job and real wage growth can stall or go into reverse.

Following the UK’s vote to leave the European Union, the economy has performed better than many people expected. Real GDP has continued to grow relatively strongly, and indeed it picked up slightly to 0.7 per cent in the final quarter of 2016.

At the same time, the UK labour market has continued to go from strength to strength. The latest data shows that there are 31.85 million people in work. The headline employment rate of 74.6 per cent is the joint highest since this particular measure started being recorded in 1971. And the unemployment rate now stands at 4.7 per cent, considerably below the long-term average of 7.1 per cent.

The Northern Ireland data also makes for some encouraging reading when compared to historical trends. Despite rising slightly over the quarter, the current unemployment rate of 5.7 per cent is lower than the average from 1995 and the employment rate is around three percentage points above its long-term average. A strong labour market is good news for workers. Economic theory suggests that increased competition for workers can be associated with rising wages as businesses seek to attract and retain the best people.

The headline employment and unemployment rates give some indication of the strength of the labour market, but to gain a clearer picture of the extent of labour market slack it is useful to consider some of the more detailed indicators. Focusing on the Northern Ireland economy, I have looked at the share of inactive people who want to work, the proportion of part-time workers who couldn’t find a full-time job, the share of temporary workers who couldn’t find a permanent job and the number of long-term unemployed people as a percentage of total unemployed individuals.

Northern Ireland’s high inactivity rate is well documented. For some people, there are reasons why they are not able to work. For example, they may be studying, or caring for family members. But there are some inactive individuals who would like to find a job, and the fact that they are not able to get one represents a waste of an economic resource. Focusing on the working age population i.e. those between 16 and 64 years old, the latest data shows that around 21 per cent of inactive individuals would like to work, which is above the long-term average for this measure.

Part-time working can also be a sign of slack in the labour market if a significant number of those workers would prefer to be full-time employees. However, many people choose to work part-time. This may be because they have family commitments, or because they are at a stage in their career when they no longer wish to work full-time. So it is important to realise that a high overall share of part-time workers is not necessarily cause for concern. Rather, the focus needs to be on how many of these workers want to be in a full-time job. From October 2015 – September 2016, just under 20 per cent of those working part-time couldn’t find full-time employment. This is above the average since 2004 (which is as far back as this data series goes) and suggests there is scope for further strengthening in the labour market.

There are similarities when it comes to temporary workers in that this may be what some people choose to do. But many of these workers would prefer the certainty that comes with a permanent job. The proportion of temporary workers who couldn’t find permanent employment in the year to September 2016 was just under 48 per cent, which is also above the historic average.

When people are unemployed for a long-period of time, it becomes harder for them to re-enter the world of work. Employers often prefer to recruit people who have recently been in a working environment and can provide evidence that they have the skills needed to do the job. In Northern Ireland people are considered to be “long-term unemployed” if they have been out of work for over a year. The share of unemployed people who fall into this category at present is just over 43 per cent. However, this is below the long-term average of above 44 per cent, which is encouraging to see.

Looking forward, we expect economic growth in Northern Ireland to slow this year and next. This weaker outlook for demand is likely to be accompanied by a slight deterioration in the labour market over the next couple of years. Therefore, we are forecasting that total employment levels will decrease by around 0.1 per cent in 2017 and 2018.

The current employment and unemployment rates suggest the labour market in Northern Ireland is in a better position now than it was a few years ago. But looking beyond the headline numbers shows that there is no room for complacency. With some challenges on the horizon it won’t be easy to make gains, however the areas to focus on in the long-term haven’t really changed. The priorities for policymakers are still helping local businesses to grow, sell more into global markets and create jobs, as well as ensuring that education and skills policies are designed in such a way that the employees of tomorrow are fully equipped for the world of work.

This article was published in The Belfast Telegraph on 28th March 2017.​​​

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