Unemployment falls to 21-year low of 4.2% as Covid bounce-back continues

Unemployment in the Irish economy fell to a 21-year low of 4.2 per cent last month as increased economic activity in the wake of Covid dragged more people back to work. This was down from a rate of almost 6 per cent a year ago. The last time the State’s jobless rate was this low was June 2001.

The Central Statistics Office (CSO) said the seasonally adjusted number of people classified as unemployed in July was 113,000 compared with 113,900 the previous month. This equated to an annual decrease of 36,000.

The rapid turnaround in employment since the lifting of Covid-related restrictions has been the defining feature of the Irish economy in recent months. It comes despite inflationary pressures and the ongoing war in Ukraine, which are expected to trigger a sharp slowdown in growth here and across the euro zone economy. Economists believe an unemployment rate of 4 per cent here is tantamount to full employment.

Minister for Finance Paschal Donohoe has warned that the economy may soon face overheating pressures as a result of the return to near full employment. Last week, however, employers’ group Ibec cautioned that there were now signs of a decline in demand for labour amid rising cost pressures for businesses.

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Responding to the latest numbers, Andrew Webb, chief economist at Grant Thornton Ireland, said: “The labour market is holding up remarkably well in the face of significant challenge. Significant cost-of-living pressures mean we are in the ‘cut back economy’ with many households having to divert some spending from desirable items to essential spending.

“This might be expected to drive a downturn in the labour market but, encouragingly, performance in key sectors such as life sciences, agri-food and professional services is faring well and vacancies are holding up. The forward view on the economy is cautiously optimistic but much depends on how much higher energy costs go as we turn the heat back on heading into the colder autumn months,” he added.

Jack Kennedy, economist at recruitment website Indeed, said: “With the economy operating close to full employment there is upward pressure on wages. This is likely to be compounded by expectations of rising prices, with the Central Bank of Ireland publishing research last month showing that households anticipate average inflation of 10 per cent over the next year.

“A positive trend that can help relieve labour market stress is Ireland’s attractiveness to workers from other countries. Recent Indeed research showed that Ireland is one of only five countries in Europe experiencing a brain gain rather than brain drain, meaning the country experiences more interest from inbound jobseekers than those in Ireland looking for jobs overseas,” he said.

“Ireland’s attractiveness to new arrivals is supported by census data which showed net inward migration of over 190,000 people between 2016 and 20224. That’s almost 32,000 people each year, with many drawn to the available employment opportunities, particularly in high skilled areas like IT, finance and professional services, all sectors where employment levels continued to grow even during the pandemic,” he said.