CSO numbers suggest we are still a long way from full employment

Towards the end of January, the Central Bank published its Quarterly Economic Bulletin suggesting that 'full employment' in Ireland was coming back into view.

There is no economic consensus on what constitutes full employment, and it will naturally differ from economy to economy. But with unemployment in Ireland for January 2019 at 5.3 per cent - and despite the fact that Ireland reached unemployment rates below 4 per cent during the 2000s - such claims are understandable given the impressive economic performance of recent years and the previous target rates of 6 per cent spoken of rhetorically by government when the economic recovery was in its infancy.

Last month, the Central Statistics released the most recent Labour Force Survey (Q4, 2018). According to the data, under-employment in Ireland currently sits at approximately 108,500 people.

Under-employment is defined as the situation where employees are working part-time, but would take full-time hours if that were available.

These 108,500 people represent 23.5 per cent of all those in part-time unemployment. This is down from a Q4-high of 32.9 per cent in 2011, but higher than the 20.1 per cent recorded at the end of 2008 and the 20.5 per cent recorded in 2016.

108,500 under-employed people also represents 4.8 per cent of all employment in Ireland, down from a Q4-high of 7.8 per cent in 2011, but higher than the 3.9 per cent recorded at the end of 2008 and the 4.5 per cent recorded at the end of 2016.

Because the CSO only began collecting under-employment numbers in 2008, it is difficult for us to know what constitutes a normal or healthy level of under-employment given that much of the data we have on the phenomenon was collected during a period where Ireland was in a deep recession. However, Eurostat provides data for underemployment as a percentage of total employment (4.8 per cent in Ireland at the end of 2018, as noted above). In 2017, the most recent year for which European data is available, Ireland ranks 6th highest out of the 28 European Union countries. Only Cyprus, Spain, Greece, France and the Netherlands have higher under-employment as a proportion of all employment than Ireland. This is not a particularly impressive score.

Ireland's performance is even less impressive when it is noted that the EU average in 2017 was 4 per cent, and the median rate - the line where half the countries of the EU are above and half are below - was 3.3 per cent. Eight countries have rates below 2 per cent.

All this suggests that while Ireland is certainly doing better than it was a few years ago, there is significant room for improvement. We may not yet be sure what constitutes a normal or healthy level of under-employment, but we can be reasonably sure of a couple of things:

1. While under-employment is lower than it was a few years ago, it would appear that the tailwind effects of falling overall unemployment in the last few years have done all they are going to do in reducing under-employment without targeted policy intervention, as recent Labour Force Survey results suggest the declining trend seems to have now plateaued. 
2. Under-employment is spare economic capacity or labour market slack, and implies under-usage of resources. In an abstract sense this means that the economy is not operating at full capacity but at a practical level this might mean that thousands are struggling financially as they are unable to work as much as they would like or need. This is not a positive social situation and these under-employed people could conceivably be added to the estimated 108,300 'potential additional labour force'* noted in the latest data from the Labour Force Survey to swell real unemployment numbers by almost 170%.

This presents a further challenge for policymakers and calls into question whether the Irish economy is genuinely approaching 'full employment'.

*The Potential Additional Labour Force (PALF) as measured by the Central Statistics Office and reported in the quarterly Labour Force Survey is the sum of the two groups ‘persons seeking work but not immediately available’ and ‘persons available for work but not seeking’. Persons in the PALF are not part of the standard labour force, which encompasses only employed and unemployed people but however they have a stronger attachment to the labour market than other persons not in the labour force. The new indicators have been defined by the European statistical office (Eurostat) following extensive international discussion regarding appropriate indicators to supplement the unemployment rate.