Ireland’s population is ageing. And this means fewer people at work compared to those in retirement in the years ahead, putting pressure on the public finances and economic growth. But there are factors pushing in the opposite direction, too.
People are increasingly retiring a bit later, due partly to longer and healthier lifespans and also in some cases to economic necessity. And, crucially, more women are entering or staying in the workforce. The trend in Ireland is part of a big international shift which has seen a change in the traditional trade-off between having children and remaining in employment. With fewer Irish women at work than is typical internationally, this is a key factor to watch in the years ahead.
1. The background: The Department of Finance has crunched the numbers on Ireland’s ageing population and the economic impact of this in papers published this week, entitled Population Ageing and the Public Finances in Ireland. The message is sobering: the Irish population is still relatively young by international standards, as the birth rate here only started to fall from around 2010 on.
Now things are changing fast. As the proportion of the population at work falls and the retired population rises, things are changing slowly, but relentlessly. That’s demographics for you. There are around four people of working age for each person of retirement age but by 2050 this ratio is projected to fall to about 2. This will slow what the department calls the “trend” or potential average growth rate of the economy from 2.25 per cent to 1 per cent by 2050 and carry an estimated annual exchequer cost of €16 billion in today’s terms. When we consider that the generous Budget 2024 package involved total measures of €14 billion, the significance of this is clear.
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A key issue is that this will mean the already-burdened younger generation will be paying additional taxes to pay for the retirement of older age groups. In classic Department of Finance speak, the report says the “optimal approach” to deal with this would be to increase the age at which people qualify for the State pension, a point – in my view, mistakenly – ruled out now across the political spectrum.
2. The trends: The Department of Finance points out that a range of approaches are likely to be needed in the years ahead to pay the bills, “including reforms to the pension, healthcare and long-term care systems, restraint in non-age-related expenditure and/or tax increases” to meet these costs. We won’t hear much about any of this during the general election campaign but pressure on the public finances from this direction will slowly build during the term of the next government, in other words by the late 2020s. And a general rise in taxes is likely to be needed, unless corporation tax starts to surge strongly again.
But there are other things happening in the background, too. The impact of the ageing population on the workforce can be offset by a range of other factors. One is immigration; those coming to take up jobs here are typically younger and are increasing the working-age population. This has been a vital factor in Ireland, first in the run up to the financial crash, and then more recently as growth rose sharply from about 2016 on.
Net inward migration (the amount by which immigration exceeded emigration) averaged 45,000 people or around 1 per cent of the population each year between 1998 and 2008. Similar trends emerged just before the pandemic. Then travel restrictions hit. Higher inward migration over the past couple of years reflects economic migration and the arrival of refugees from Ukraine and elsewhere, some of whom have also entered the workforce. In the medium term the Department expects inward migration to continue, though at a lower level.
A second factor pushing up the size of the labour force is older people continuing to stay in work for longer. Those working in their 50s in Ireland are now more likely to stay on in employment in their early 60s than was the case in the past – and this so-called “retention rate” is higher in Ireland than the international average. The Department of Finance also forecasts that the numbers at work beyond the age of 65 will continue to edge higher.
Another factor which can offset the ageing population is the increased productivity of the people who are in work. Measuring productivity is tricky and there is a huge gap between the multinational sector in Ireland and domestic industry.
3. The woman factor: There is one final trend to consider in the mix – the steady growth in the number of women at work and the expectation this will continue. Internationally, the trends here have changed fundamentally over the past 30 to 40 years. Back in the 1980s, the economic data indicated that for women it was what researchers termed an “either-or decision” – they either became a mother or decided to stay in their job. However, according to the Department of Finance summary of the international research, “subsequent cohorts of women are now largely choosing to have children before, after or during their career”.
Looking over the longer term – and the trends during the 20th century, particularly after the second World War – the picture for many years was of a gradual rise in the number of women in the workforce, combined with a fall in fertility rates. However, since the 1980s this relationship has reversed, due to social and economic factors. According to a paper published by the International Monetary Fund and written by leading researchers in the area, this has amounted to a “fundamental economic transformation”. Back in the 1970s and 1980s in poorer countries women tended to have more children – this is no longer the case.
The researchers wrote that four factors explain the variation in career-family compatibility across countries: family policies, co-operative fathers, favourable social norms, and flexible labour markets. In terms of Government policy, the key issues are the availability of affordable childcare – in Sweden and Denmark, where this is the case, woman participation in the jobs market is high – as well as the way labour markets work. For example, in some countries it can be hard for women with caring responsibilities to get a permanent position meaning they are confined to more temporary work. Social norms, they say, reflect the fact that in some countries women can still be criticised in some cases for not staying at home to care for children but this is now much less common. Meanwhile, fathers are now taking on a greater role in many cases, reversing the traditional norm.
In Ireland, the rise in woman participation in the labour market has been steady – and striking – rising from below 50 per cent at the turn of the century to edge over 60 per cent now. There has been a marked rise since before the pandemic – when labour force participation by woman stood at 56 per cent. This has been attributed in part to the greater availability of flexible working during and after the pandemic shutdowns. The figures here are significant. The CSO data shows the number of women in the labour force – working or looking for employment – has risen from 735,000 in 2000 to 1.33 million now. The total has risen by more than 200,000 since 2019 alone, meaning woman employment accounts for more than half of all the rise in total employment since then.
Despite this rise – and despite the fact that on average Irish women are better educated than men – woman participation in the workforce is low here by international standards. The Organisation for Economic Co-operation and Development average stood at a record high of 66.7 per cent last year and in many advanced countries the figure is more than 70 per cent. The odds are that due to choice and economic necessity – including the price of housing in Ireland – the number of couples where both are working will continue to rise. And the ageing of the population means there will be more women in older age groups too – and this is also likely to increase woman participation here.
Over the past year, employment rose by 21,600 or 1.5 per cent for men in Ireland and 29,900, or 2.4 per cent for women. With 1.43 million men at work in Ireland and 1.27 million women, the 160,000 gap looks set to continue to close in the years ahead.
