More immigration and participation could be key to fill dwindling talent pool

‘ANOTHER day, another dollar’, the classic saying goes. In other words, same old, same old — you go to work, get paid, nothing changes. A cursory glance at developments in the Irish labour market of late suggests that this is not the case though, with a deeper look confirming that there is in fact plenty afoot. More people are in jobs than ever before. Workplaces are becoming increasingly diverse. The way we work is evolving and new occupations are emerging.

Wages are increasing too and, as 2019 gets under way and the market edges closer to ‘full employment’, further gains look to be in store.

Research carried out in January as part of the Bank of Ireland Economic Pulse found that almost half of workers are expecting a pay rise in the next 12 months, while 44pc of firms plan to increase basic wages.

For employers, a tightening labour market means a shrinking pool of potential workers.

The unemployment rate is now down to 5.3pc and with economists generally using 5pc or a bit under as a rough rule of thumb for the long-run sustainable rate, there appears to be little slack left. Cue less choice for firms and growing difficulties in filling vacancies.

For employees, tighter conditions make getting a job or leaving a position with one company to take up a new position with another employer much less of an ordeal and less of a risk.

At the current juncture, one in two workers thinks it is easy to find or change jobs according to the Pulse survey. This is up from just over a quarter back in early 2016 when this question was first asked. Cue more opportunities for workers and a greater willingness to switch jobs.

The upshot of all this comes as no great surprise. With firms seeking to attract and retain staff and workers seeking to exercise their bargaining power, there is upward pressure on wages.

There are other factors in the mix, however, which may keep a lid on things, at least for the time being. Rising non-labour costs are one example.

These are impacting margins for some firms and in turn their ability to increase pay. For others, ongoing global trade tensions are a source of concern. And of course Brexit is never too far from anyone’s mind.

The pound remains at a level against the euro which is biting for exporters, while uncertainty about how the UK will leave the EU has reached fever pitch in recent weeks.

Various analyses show that a disorderly exit is especially damaging for the Irish economy but, even with London and Brussels back talking, it cannot be ruled out at this stage.

It is ironic though that at the same time as Brexit worries are tempering expectations in some sectors, the UK-based companies relocating here because of it are raising the pay bar in others. This brings home the fact that the labour market is not uniform, with differences also between what multinationals can afford to do and what indigenous companies are able to do.

But coming back to the aggregate picture, it is clear that change as opposed to same old, same old is the order of the day. Available resources are rapidly being used up and ‘full employment’ is in sight.

Typically, it is at this stage of the economic cycle that wage pressures begin to build and overheating risks surface.

Guarding against these is important. We know from bitter experience what happens when the economy goes down the road of losing competitiveness, meaning action is required on two fronts.

First, measures are needed to boost the labour force. Population increases, including inward migration, will have a role to play in this. There is also scope to raise the participation rate among some groups.

Second, ensuring wage growth is aligned with productivity growth is key. Or to coin a new phrase, ‘more money, more output’.