What does Ireland's participation rate tell us?

Last week, the Central Statistics Office released the most recent Labour Force Survey (Q2, 2019). The headlines are impressive: The Irish economy experienced its 28th consecutive quarter of annual employment growth since the low point in 2012. This reflects a remarkable turnaround in the Irish labour market in the last seven years.

Indeed, the increases in employment year on year have perhaps been the great good news story of the Irish economic recovery.

Much of the recent talk around Ireland’s labour market revolves around the idea of ‘full employment’; what it is, whether Ireland is close to it, and when we might reach it. In an article published on this website last week, we noted that 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 July 2019 at 5.3 per cent - and despite the fact that Ireland reached unemployment rates below 4 per cent during the 2000s - claims that the Irish economy is reaching full capacity are reasonably understandable given the impressive economic performance of recent years and the previous unemployment rate target of 6 per cent spoken of rhetorically by government when the economic recovery was in its infancy.

However it's important to note the context in which these impressive numbers are being achieved. For example, despite improving year on year employment numbers, under-employed remains a persistent problem in Ireland, with 113,000 people classified as under-employed. Under-employment is defined as the situation where employees are working part-time, but would take full-time hours if that were available. High under-employment implies significant spare economic 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.

Ireland's Participation Rate

It is also important to recognise that Ireland's low unemployment rates and impressive jobs creation numbers are being recorded in the context of a far lower participation rate than Ireland has had in the recent past. The labour force participation rate (LFPR) is calculated as the labour force divided by the total working-age population. The Central Statistics Office's Labour Force Survey measures the labour force aged 15-74.

Ireland's current LFPR is 62.1 per cent. This is notably lower than the 67.4 per cent recorded in Q3 2007, which was the peak of Ireland's labour market performance prior to the financial crash of 2008. Worryingly, this number is slightly lower than a year ago, though the rate has hovered around 61 per cent the last eight years, showing no sign of returning to pre-recession levels.

Drilling deeper, some interesting trends arise. First, let's look divide the sample by age.

For those aged 20-24 years old, the current LFPR of 73 per cent is far lower than the 89.3 per cent recorded in Q3 2007. This no doubt - in part - reflects a greater tendency for younger people to remain longer in education and training than during the Celtic Tiger years when employment, particularly in construction and particularly for young males, was easily available to young people. Indeed, the LFPR rate for young males of this age group has fallen by 18.5 percentage points, versus 14.2 for females in the same age cohort.

Compare this fall to the rates for those over the age of 55: The LFPR for those aged 55-59 years old is 71.6 per cent, an increase of 9 percentage points since Q3 2007. The LFPR for those aged 60-64 years old is 55.2 per cent, an increase of 8.6 percentage points since Q3 2007. These are huge increases.

Even the LFPR for those aged 65 years and older is higher now than during the Celtic Tiger years. It was 9.3 per cent in Q3 2007. It is now 11.3 per cent.

"Women drivers"

What is most interesting about these changes in the LFPR for those aged 55 and older is the extent to which the increased participation rates in the last 12 years are being driven almost entirely by higher rates of female participation. For women aged 55-59 years, the LFPR has increased by 14.8 percentage points since Q3 2007, compared to an increase of just 3.7 percentage points for men. For women aged 60-64 years, the LFPR has increased by 15.3 percentage points since Q3 2007, compared to an increase of a mere 2.3 percentage points for men. Though the overall increases are much smaller for those aged 65 years and older, the LFPR has increased by significantly more for women than for men in this cohort too; by 2.6 percentage points since Q3 2007, compared to an increase of just 0.6 percentage points for men.

However, despite these very significant increases in the LFPR for the oldest age cohorts, Ireland is still operating with a notably lower overall participation rate: 5.3 percentage points lower in 2019 (62.1 per cent) than in Q3 2007 (67.4 per cent). At present, our LFPR is equivalent to 2003, still four years off the Celtic Tiger peak. (Whether we wish, or need, this or any other indicators to return to the Tiger-era peak is not certain).

What's going on?

To an extent, these large jumps in the LFPR of older people are in direct contrast to the falling rates or participation among the younger cohorts. When the rest of the country’s participation was falling, it was increasing for this older group, and that’s even the case after the recovery began. What is going on here?

Well, obviously older people are now working longer. There may be a number of different effects at play here, including a desire to work longer (given that Irish people are living longer, healthier lives), and because of less generous retirement benefits from occupational pension plans and/or the state. (Certainly it is much less easy these days for people to receive a State Pension prior to the State Retirement Age, which has increased from 65 to 66 since the beginning of the recession). Many occupational pension schemes have also greatly restricted early retirement options due to solvency issues since the financial crash.)

But it should also be noted that the increasing participation rates for older people are in a sense a continuation in the trend for this cohort in the decade prior to the financial crash. As noted above, the LFPR for 55-59 year olds increased from 62.6 percent in Q3 2007 to 71.6 per cent in Q2 2019, but in the decade prior to 2007 it had already increased by 10 another percentage points. 60-64 year olds experienced a similar increase in that same decade, and all this was driven primarily by increased female participation.

Some have suggested that there is a squeezing effect at play: Are older people taking (or remaining longer in) jobs and blocking a pathway into work for younger people? Clearly in the years following crash, there was a greater incentive for younger people to remain longer in education as there were less jobs available. There may be a carryover effect from this, as it becomes even more than usual the societal norm to remain in education longer. But could it also the case that older people forcing some younger people to remain outside the labour market for longer periods?

Ireland's lower overall participation rate is also likely to be a result of a significant number of discouraged workers. The recession saw a huge jump in long-term unemployment. This rate has been falling steadily the last four years or so, and in early 2017 it fell below 50 per cent of all those unemployed for the first time in around 7 years. However there has been no corresponding uptick in the LFPR.

Converging participation rates between the genders

We have noted the increased rates of female participation in the labour force. This extends to all age cohorts over the age of 25. Well-documented changes in social attitudes have of course played a part in increasing female participation, but the comparison of LFPRs between men and women over time and across different ages is interesting. Among the younger age groups, the male and female participation rates have always been reasonably similar, and this is more so nowadays than ever before. It is among the age brackets where women typically begin to have children that patterns begin to differ.

However, they have been converging. To give one stark example: Among 45-54 year olds, the LFPR for men in 1998 was men 87.6 percent. For women is was 47.3 per cent. Today, it is 88.4 per cent for men, so no change, really. For women, it is 72.6 per cent. That's a huge 25.3 percentage point increase in female participation in the last two decades.

There's an even greater leap for the older cohorts: 31.2 per cent for those 55-59 and 29.2 per cent for those 60-64 years.

Conclusions

Across the developed world, workforces are showing signs of ageing. Since 2008 the average LFPR of those aged 55-64 years in OECD countries has risen by 8 percentage points and Ireland mirrors this trends exactly. This trend can be seen as many different things, depending on your point of view: that workers are being forced to work for longer due to contracting social supports; that employees are realising that work gives a certain amount of meaning to their lives; or that society is finally recognising the value of its older employees. Working for longer is getting easier too, as more jobs require mental, rather than manual, labour. But the physical strain of being a farmer or construction worker makes it harder to keep working into (or beyond) your 60s. Some balance must be found.

Overall, Ireland is still operating with a notably lower overall participation rate (LFPR) than at our employment peak 12 years ago: 62.1 per cent in Q2 2019 versus 67.4 per cent in Q3 2007. Our current LFPR is equivalent to 2003, still four years off the Celtic Tiger peak.

While much of this is the result of younger people remaining in education for longer, the analysis according to age and gender suggests that there may still be a significant number of discouraged workers (the vast majority of whom are men) who are no longer engaged with the labour market. This is despite the fact that, as previously noted, employment numbers have increased year-on-year for 28 consecutive quarters. If this is the case, it emphasises the negative effect that long periods out of work can have on engagement. Previous analyses of long-term unemployment by Social Justice Ireland over the last three years or so have highlighted the way in which middle-aged to older males were most affected by this phenomenon in the early part of this decade. Comparing the trends in participation rates between men and women, those of men lag way behind women in the older age brackets and are on a downward slope for many age brackets.

Regardless of the positive headline trends in employment over the last few years, our labour market woes are far from fixed.