813,640 people ‘don’t want to work’ – and may be hindering wage growth

What do you call a stay-at-home parent, retiree, "gig economy" worker who wants to work more or someone who is simply fed up trying to find a job? According to the Central Bank, these are the "nonemployed" – and a high number of them in the Irish economy may be one reason behind the stagnation of earnings.

The Central Bank has created a new measure, the nonemployment index (NEI), to track trends related to “discouraged workers, passive job seekers and underemployed workers – individuals who are working part time but would like to work more hours”. It figures that there are 888,708 Irish people of working age – 15-64 – who fall into this category.

The NEI differs from standard unemployment information in that it covers all those people out of the labour force, and not just those collecting unemployment benefit. This can include stay-at-home parents, retirees, students, people who simply don’t want a job and those working part-time who would like to increase their hours.

As such the Central Bank argues that the NEI provides a fuller picture of labour market conditions, given the size of the pool of nonemployed individuals compared with the standard unemployment rate. Economists have suggested that Ireland is set to return to full employment – a rate of about 5 per cent – next year, but as the NEI shows, this doesn’t necessarily mean that the economy will be operating at full capacity, as there is another cohort of potential employees who could enter the workforce.

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Indeed the figures show that 22.3 per cent of the working-age population, or some 813,640 people, tick the “don’t want a job” box when queried by the Central Statistics Office. This is up on the 744,992 people in this category back in 2002, but accounts for a lower proportion of the population, down from 23.45 per cent.

The underemployed

The study also reveals an increase in the numbers of part-time underemployed people – those who might like to work more but haven’t been given the opportunity. Back in 2008 there were some 72,666 people in this category, and while the figure rose to 135,971 at the height of the downturn in 2012, latest figures for 2016 show that while it has since slumped, it is still 16 per cent ahead of 2008 levels, at 84,901.

Overall, the analysis shows that the nonemployment rate stood at 9.4 per cent as of end 2016; but Ireland’s unemployment rate was 6.9 per cent. This suggests, to use an ECB term, that there may be a “high level of underutilisation” in the Irish economy, meaning there may be some scope for unemployment to fall further, before “significant wage pressures” emerge. This could be one reason why wages in Ireland haven’t risen as much as might have been expected by the consistent fall in recent years of the unemployment rate. A further reduction in the NEI, however, “would boost labour supply and positively impact the economy’s potential growth rate over the medium term,” the Central Bank analysis found.

The NEI first came to prominence when it was developed by US economists in 2015, and is currently used and updated every month by the Federal Reserve Bank of San Francisco. Although the Irish NEI was higher than the US equivalent in 2008-2015, it has recently dipped below the US rate.