ICT sector has limited capacity to absorb more lay-offs, says Department of Finance

The information and communication technology (ICT) sector has limited capacity to absorb further lay-offs in the wake of this year’s “right-sizing” of pandemic-fuelled employment expansion, a new Department of Finance report has found.

Summer Economic Insights, published by the department on Thursday, noted that ICT was the “bright spot over the pandemic period”, but that the sector has moved “from a position of outperformance to underperformance relative to the aggregate economy”.

As a non-contact intensive sector that benefited from digital consumption patterns during Covid-19, employment was generally positive in the ICT sector throughout the pandemic, with more than 40,000 additional people at work in the sector now.

This represents a 33 per cent increase, and a jobs growth rate more than triple that of the aggregate economy.

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The department notes that despite accounting for only 6.5 per cent of overall employment, the sector contributes 10 per cent of employee compensation, and about a third of corporation tax receipts.

The paper highlights a recent “right-sizing” in employment levels in the ICT sector internationally, however.

Globally, about 375,000 lay-offs have been announced in the last two years. In the State, an estimated 3,000 workers have lost their jobs, and there was a 10,000 fall in employment in quarter three of 2022.

Analysing job postings data from Indeed, the department found that labour demand in the ICT sector has now normalised to pre-pandemic levels, “limiting the scope for the sector to absorb further job losses in the short term”.

It noted that ICT job postings have fallen almost 40 per cent from their peak in June 2022, “significantly out of step with strong labour demand at the aggregate level”.

Vacancy rates in the ICT sector have also fallen below the overall economy for the first time on record, down from their peak of 2.3 per cent last year to 1.2 per cent currently.

The department also examined the Republic’s participation in global value chains, in particular the viability of increasing domestic capacity to produce semiconductors.

The paper noted that the Irish semiconductor industry has grown in recent years, with integrated circuits accounting for about 6 per cent of total goods exports in 2022.

China and the US accounted for more than 85 per cent of Ireland’s exports in this sector in 2022, while more than 95 per cent of semiconductor imports came from Israel, the United States and the euro area.

As policymakers around the world seek to mitigate similar concentrations, and reshore semiconductor supply chains by enhancing domestic manufacturing capacity, the department has warned that doing so in Ireland would have “significant impacts on the domestic economy”.

The paper said reshoring stages of production in Ireland could result in higher labour costs, put upward pressure on prices and impact demand and competitiveness.

It concluded that, particularly in small economies such as Ireland, economies of scale and resource constraints are obstacles for reshoring and that diversifying production “is generally deemed superior to reshoring when it comes to ensuring the robustness of supply chains”.