27 Dec 2017 | 11.36 am
Analysis: Jobs Growth And Wage Trends
Average pay inflation of 1.9% in year to June 2017
27 Dec 2017 | 11.36 am
Jobs growth across the Irish economy has bucked the Brexit factor, at least until recently. Chris Sparks analyses the impact on pay trends and job mobility
It has become increasing difficult to make sense of growth trends for the Irish economy based on National Income data, such is the distorting effect of multinationals transferring intangible assets to Ireland for tax reasons. A more reliable economic indicator is the labour market, which despite Brexit fears and the sterling slump has been powering ahead.
The government’s preferred measure of measuring employment growth is the Quarterly National Household Survey produced by the Central Statistics Office. This is a survey of 15,300 households concerning labour market participation, from which trends are extrapolated.
The latest QNHS, published in September and relating to the April to June 2017 period, estimated an annual increase in employment of 2.4% (48,100) in Q2 2017. That continued an improving employment trend that has been recorded every quarter, with one exception, since the end of 2011.
The QNHS data suggests that the Brexit vote in Q2 2016 and the subsequent tanking of sterling has not yet had an impact on the Irish economy or the jobs market. However, there are some minor straws in the wind. The second quarter QNHS employment growth from Q1 2017 was just 0.2%, an outcome described as disappointing by most economists.
The softer pace of employment growth in Q2 is reflected by some recent business confidence surveys. The Bank of Ireland Economic Pulse, which monitors 2,000 businesses, came in at 88.7 in September, down 3.1 on August and 1.6 lower than a year earlier. Respondents downgraded their assessment of the current jobs situation and were generally more subdued about near-term prospects for business activity and hiring.
Bank of Ireland economist Dr Loretta O’Sullivan commented: “The UK’s decision to leave the EU continues to be a concern, with the majority of businesses, led by those in Connacht/Ulster, expecting it to have a negative impact on the local economy in their region over the next 12 months.”
Accountancy firm BDO’s quarterly Optimism Index monitors a sample of 356 business owners and managers countrywide. Its July research found that the prospect of Brexit negatively impacting the Irish market is quickly becoming a reality for businesses in Ireland.
“Forty per cent of our panel now believe Brexit will have a negative impact on their business compared with 20% a year ago,” says managing partner Michael Costello. “Overall, employment is on similar levels to previous years. There has been an increase amongst mid-tier companies expecting to employ more, contrasted with a rising number of micro companies experiencing a reduction in employee numbers.” This view was echoed by PwC’s CEO Pulse Survey, which found that half its large corporate clients are still intent on expanding the workforce.
Digging deeper into the QNHS data, Ulster Bank economist Simon Barry sees little sign of a let-up in the competition for top talent. Barry notes that the employment indices of monthly PMI surveys remain at elevated levels, well above the average levels seen at the top of the last cycle.
“In addition, the number of job vacancies across the economy continues to rise, with accelerated growth evident in the year to Q2, when the number of vacancies reached their highest level since the onset of the crisis,” says Barry.
In Barry’s analysis, headline QNHS employment figures are understating the underlying pace of jobs growth. Full-time employment continues to grow very rapidly (5% annually), resulting in a faster pace of Full-Time Equivalent jobs growth of 3.5% compared with the headline measure of 2.4%
The Q2 QNHS data revealed that the largest areas of increased employment are services (up 39,000 year-on-year) and construction (up 10,500). As was the case in Q1, 11 sub-sectors recorded positive annual growth. The three sectors with negative employment growth over the last year were primary/agriculture (down 5.4% or 6,300) and financial services, insurance and real estate (down 1.4% or 1,400).
Though the political narrative in some quarters is of a two-tier economic recovery, the QNHS data indicates otherwise. Seven out of ten jobs created over the past year, and over half of the jobs created over the past five years, have been filled by workers outside the Greater Dublin Area.
Simon Barry observes: “All regions have experienced improved employment performance over the recovery so far, with the Midlands, South-East and Dublin outperforming the rest of the country. The South-West has experienced exceptionally strong employment growth of almost 7% over the last year and is the first region to see its post-crisis jobless rate get back to under 5%.”
The Border region is the only region to experience negative jobs growth over the last year. As the sterling factor bites and cross-border shopping picks up, the region has seen an estimated job loss of 4,000 in Wholesaling & Retailing over the past year leaving employment in that sector at its lowest level in over 14 years.
With the official unemployment rate measured at 6.1% in August, the lowest since 2008, Barry concludes that Ireland is now starting to close in on full employment. “Remaining spare capacity in the labour market is being eroded at a relatively fast pace,” he says.
So how is this impacting on pay levels? Average earnings increased in 12 of the 13 sectors in the economy in the year to Q2 2017, though there are large variations in earnings across the sectors. With American tech giants still in ramp-up mode in Ireland, unsurprisingly the main pressure point on staff costs is the Information and Communication sector. The CSO estimates current average annual pay of €56,400 in ICT, 2.8% higher than a year ago.
Average annual pay in the Civil Service has risen by 5.8% in the past year to €49,600 and this is influencing pay rates in the private sector. In the year to Q2, the largest percentage average earnings increase was 9.3% in the Administrative and Support Services category, up to €29,000 p.a. Another sector where pay pressure is higher than the average is Professional, Scientific and Technical, up 4.3% year-on-year to €45,900, according to CSO data.
Across the private sector, average pay inflation was 1.9% in the year to June 2017, made up of 1.8% for SMEs, 1.2% for mid-sized firms and 2.4% for enterprises with more than 250 staff. At the executive level, pay pressures are relatively contained. CSO data for Q1 2017 relating to managers, professionals and associated professionals shows average annual pay ranging from €59,400 to €78,600, depending on the sector. Salary inflation in the year averaged 0.7%, in a range from 0.2% to 1.1%.
In a tight job market, candidates are more confident of seeking a move to achieve higher remuneration. Based on new candidate registrations, staffing agency Morgan McKinley says there was a 19% increase in the number of professionals seeking jobs in August compared with a year earlier.
“This indicates continuing high levels of mobility and perceived opportunity among the professional workforce and also reflects the nationally low rate of unemployment,” says Trayc Keevans, the company’s Director of Inward Investment. “There is an increased focus on employee retention, career planning and succession programmes and an overall strengthening of the remuneration and benefits being offered to professionals.”
According to Keevans, the procurement function is particularly buoyant, in line with a growing trend of centralisation of European procurement operations by multinationals in Ireland. “Combined with investments in advanced new technologies and systems, this is underpinning growth in recruitment by this sector, which had largely been dominated by domestic considerations to date,” Keevans adds.
“Procurement in and from Ireland is becoming more global and more strategic in nature, requiring specialist skills and qualifications. This is also stimulating an influx in employees from other countries to fill senior level and specialist procurement roles.”
The view from Morgan McKinley is that professional services firms, including audit, financial, treasury and legal, are under increasing pressure to retain staff. “In legal, some multinational firms are seen to be recruiting full legal teams to cater for strategic international requirements across a number of legal specialisms.
“We are seeing a continuing resilience and growth of employment opportunity in the pharma sector where many companies are establishing regional hubs in specially developed campuses around the country. It is also based on a substantial pipeline of inbound interest in Ireland including the headquartering of EU operations, finance, quality assurance and legal functions.”
Another pinch point in the scramble for talent is the looming General Data Protection Regulation. Keevans notes that while the administrative processes for data governance are important, so too are the technologies and systems that are required to underpin successful compliance. “There is considerable investment taking place in this area and many available opportunities for ICT professionals as a result,” she adds.