Business

Low productivity and high inactivity are key challenges facing the NI labour market

Northern Ireland’s economic inactivity rate remains above the UK average

IN recent years, a lot of economic analysis and commentary has involved comparing the data of the time with that from just before the financial crisis that started in 2008. When making such comparisons myself, I always take the last quarter of 2007 as the pre-crisis level. As we are currently ten years on from that point in time, I thought it would be interesting to take a look at the Northern Ireland labour market and see how the latest data compares with that from just before the crisis struck.

Across the headline indicators, the numbers are very similar. In the last quarter of 2007, the local employment rate was 68.1 per cent, exactly the same as in the third quarter of this year (which is the latest data that we have). The current unemployment rate of 4 per cent is actually 0.2 percentage points lower than it was at the end of 2007. And the inactivity rate of 28.9 per cent is the same as before the crisis.

The first two comparisons make for somewhat encouraging reading, but the third one does not. Despite being the same as it was before the crisis, Northern Ireland's inactivity rate remains far too high. In the UK as a whole, the inactivity rate is 21.6 per cent.

People are classed as unemployed when they don't currently have a job, but they are looking for one, whereas when people are classed as economically inactive it means they aren't working or currently seeking work. Individuals can be economically inactive for a number of reasons. They may be a student or have retired from work. Some economically inactive people have long-term health issues. Others spend their time looking after their family and their home. Some people may be discouraged from entering the labour market, or may have a temporary health condition, or may simply prefer not to work.

For some people, entering the labour market may not be an option. But, 18 per cent of those who are of working age and are classed as economically inactive would like to have a job. That equates to 62,000 people – considerably more than the 35,000 classed as unemployed. This emphasises the point that there is a relatively large group of currently inactive people who would like to be in work and I think that supporting them as they try to achieve that goal needs to be a key aim of policymakers in the years ahead.

Returning to the comparison with pre-crisis levels, there is another indicator which has not changed very much – real earnings. In 2007, real full-time weekly earnings in Northern Ireland were £497. In 2017, they are £501. So compared with a decade ago, people's real earnings (i.e. earnings which are adjusted to take account of inflation) have risen by just 0.8 per cent. One of the key reasons why real earnings haven't really changed in the last decade is that productivity growth, or increases in the amount of output that is produced in an hour of work, has been very low. In order to get real earnings increasing more quickly, raising productivity is essential.

However, there are some elements of the local labour market that have changed in the last ten years. For one thing, a greater proportion of jobs are now private sector jobs as opposed to public sector jobs. At the end of 2007, the split was 70 per cent private sector to 30 per cent public sector. Whereas the latest data shows that 73 per cent of jobs are now in the private sector and 27 per cent are public sector roles.

There have also been some changes in the sectoral breakdown of jobs since the end of 2007. For some sectors, such as manufacturing, agriculture and education, the number of jobs as a percentage of total jobs hasn't really changed very much over the last ten years. However, the proportion of jobs in the construction and wholesale & retail trade sectors has fallen compared with before the crisis. On the other hand, the share of jobs in the human health & social work, admin & support services and restaurants & hotels sectors has increased a little.

What this analysis shows us is that the Northern Ireland labour market still has some long-standing issues which need to be addressed – namely boosting productivity and bringing down the high rate of economic inactivity. The last decade, which included the global financial crisis and a number of years of recovery, was a challenging one from an economic standpoint. That being the case, it is not entirely surprising that there are some issues facing the local labour market. But with Brexit on the horizon, the environment within which these challenges must now be tackled is unlikely to be an accommodating one. I wonder what an analysis similar to this might show in another ten years' time.

:: Conor Lambe is Danske Bank economist in Northern Ireland. Follow him on @ConorLambe

:: Next week: Richard Ramsey

Enjoy reading the Irish News?

Subscribe from just £1 for the first month to get full access

Today's horoscope

Horoscope


See a different horoscope: