When it became clear in late spring 2020 that the pandemic was not going to be a short-term event, fears quickly grew about the impact on the jobs market. Clearly, many jobs were going to be affected and there were fears of a longer-term impact on unemployment, which would linger long after the pandemic passed.
So it is remarkable that one of the dominant economic stories in Ireland is not unemployment but the opposite – the most significant labour shortage seen in many years, stretching across sectors and different pay levels. Some of this is the aftermath of the pandemic, which has – for example – led to many foreign nationals returning home and many employees deciding to change the sector they were working in.
But it is also to do with a surge in growth in high-tech sectors, notably digital services, during the pandemic. While we all worried about the impact on the parts of the economy we see every day – restaurants, hotels, coffee shops and so on – the hidden sectors, run for months from bedrooms rather than boardrooms, were just getting on with it.
As a result, the Irish jobs market is hot. The official labour data this week told the story, with the headline being 2.5 million people at work, 10 per cent up on a year earlier. Now the figures are messed up by Covid-19 and the job supports which are being wound down. But the growth story is there to see.
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Employment in the ICT sector, including many of the big digital service multinationals and some high-tech manufacturers, has risen by 39,400, or more than 30 per cent ahead of pre-pandemic levels. Meanwhile in professional and scientific services – which as well as many science jobs includes lawyers and accountants who benefit from the booming multinationals – job numbers are up 32,200 or almost 23 per cent on pre-pandemic levels.
Staff shortages
This rapid expansion, combined with pandemic dislocation, has led to staff shortages right across the tech, pharma and professional services sectors. Stories are rife of whole teams being poached, big wage rises to attract staff and in some cases professionals based in overseas arms of major firms servicing Irish clients. In some firms existing staff are now restless because of the higher wages used to attract new hires. Recruiters have never seen anything like it.
Meanwhile labour shortages are sweeping across the reopening sectors too, albeit for different reasons, and largely due to pandemic dislocation. Some hotels are using guest rooms to house overseas staff now returning as the season builds. Restaurants are fighting over chefs, waiting staff and kitchen porters and wages are rising at a time when finances are already under pressure for many.
What are the consequences of the labour shortages sweeping the economy? In the short term, rising wages will add to inflationary pressures. Companies will pass on higher costs, increasing the chances of some level of inflation becoming embedded. Companies – and economies – can deal with higher inflation, to a point, if productivity is rising too. That will be the challenge.
The chronic shortages of skills in many sectors will also tilt the balance in the return-to-the-office debate. Flexible working is now a key demand of new hires and a key lever for retaining existing staff. There is no going back to the old office routine.
The recovery will also widen the gap between the multinational-dominated modern sectors and the ecosystem that surrounds them on one side and the rest of the domestic economy on the other. One has powered ahead during the pandemic while the other has suffered. Looking at hours worked across the economy, the ICT sector shows a 24 per cent increase in the final quarter of last year compared with 2019. Hours worked in industry are up 5 per cent, but the accommodation and food sector showed a 20 per cent fall. It should be bouncing back with reopening, but the removal of Government supports and potential longer-term changes in consumer habits will be challenges.
Wider impacts
And there are wider impacts too. The employees of the modern sectors and the ecosystem surrounding them are now themselves an economic force; they are the ones with spending power, who can afford to live in build to rent developments, buy houses and so on. A few years ago Ibec boss Danny McCoy raised the issue of the rest of the economic being “crowded out” by the sheer size and growth of these sectors, which has also commanded significant construction resources in recent years and is now outcompeting the rest for staff.
The answer to this is not to try to crimp the growth of the big players. It is to ensure that the State uses the tax resources it is getting to expand its own capacity – to take on the vital tasks in areas such as housing, health, the climate agenda including green energy and so on. And in the short term to help support the rest of the economy out of the Covid-19 mire.
In the longer term, investment in education will be a key step to spreading the potential gains through society – and addressing the need for highly skilled employees which are the X factor for this type of investment.
The multinational sector in Ireland has been going through an extraordinary growth spurt, based in part on big reorganisations after 2015 which led to more intellectual property assets – copyrights, patents, trademarks and so on – being moved under the ownership of Irish operations. These moves were driven by international tax changes, but have also spun off to more jobs and more taxes for Ireland. There are new challenges as the tax reform agenda continues, but for now the growth story continues, Ireland is in a sweet spot, with buoyant jobs and tax revenues. Using this wisely and effectively is now the key political challenge.