For the past 250 years migration from and to Ireland has been driven by individuals seeking a better standard of living and new opportunities.
From the early 19th century, emigration was central to Irish life until Ireland joined the then European Economic Community (EEC) in 1973. In the 1970s, for the first time in centuries, there was net immigration amounting to 0.3 per cent of the population each year as emigrants returned.
The past 35 years have seen further big changes in the pattern of migration, still driven by the differences in living standards here and abroad.
In 1992, Patrick Honohan quantified the level of emigration if the Irish unemployment rate was substantially above the UK rate. More recent research showed that Irish people would work in Ireland for 5 per cent less than they could earn elsewhere. If the gap widened they left, and if it narrowed they returned.
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In the 1990s the return of the emigrants who had departed in the 1980s was a significant factor in the rapid growth in the economy. Today, a high proportion of younger age groups emigrate each year and they later return, continuing this pattern of the recent past.
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Most immigrants to Ireland today are, like Irish people over centuries, motivated by better job opportunities in Ireland than in their home country.
In the 2000s there was very large immigration from the then new EU member states, as jobs in Ireland paid much better than in Lithuania and Poland. Today this flow has almost dried up as higher pay in the “new” member states, and high housing costs in Ireland, mean people from these countries can have a better standard of living at home.
Instead, there is now a big inflow of highly educated workers from countries outside the EU, such as India and Brazil. For them, high Irish salaries make up for the exceptional cost of accommodation.
The very useful Department of Finance publication Future Forty considers 2,000 scenarios on how the economy may develop over the next 40 years. Among other issues, it explores a range of possible outcomes on economic growth, migration and housing. These are considered individually. The next task for the department is to link these scenarios up using a simple model of the economy.
Economic growth, migration and housing demand are all inter-related. If growth and productivity in the future prove to be low, then employment growth will also be low. Fewer job opportunities in Ireland from slower growth would dampen inward migration, and ease demand for new housing. If economic growth were greater than anticipated, immigration and housing demand would also be higher.
The report also points out that with elderly people accounting for a rapidly growing share of the population, we will need continuing immigration to balance the generations and provide for the health and social care needs of the future.
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The department notes both significant pent-up demand for housing and the need for additional housing for a growing population Together this requires a huge surge in housing investment over the next five or 10 years.
There are suggestions that skilled immigration from outside the EU should be reduced to ease pressures on infrastructure. However, this is the wrong solution.
If the jobs are still there, but employers can’t fill them with skilled labour from abroad, there will be substantial dislocation. Wages in key sectors would rise, reflecting labour shortages, and this would encourage some additional immigration from the EU and UK, offsetting some of the reduction in non-EU immigration.
The result would be higher costs and higher domestic inflation. Cost-sensitive jobs we may need in the future would probably be lost. The labour shortages would discourage further investment, having a negative long-term impact. Government agencies trying to decide who should get limited work visas, and who should not, would introduce an arbitrary approach, making life very difficult for affected businesses.
If the economy is operating beyond its capacity to deliver increased output, given constraints on housing and infrastructure, the correct approach is to reduce domestic demand and employment growth. Measures to achieve that could be higher taxes or lower public spending, to reduce aggregate demand, or a slowdown in IDA activity.
Slower economic growth would bring demand for labour more into line with the numbers that can be accommodated in Ireland, while not adding to domestic inflationary pressures.
The appropriate long-term policy is to expand infrastructure and housing: the optimal solution to capacity constraints. Effective measures promised by the Government later this year to tackle the regulatory obstacles to essential investment will be critical to reduce the housing constraint on growth.
