Feeding the tiger
How will Ireland's tiger economy keep up its momentum?
There can be few examples of the sustained expansion of national wealth to beat Ireland's record over the last ten to fifteen years. Even now, economic growth continues at a rate of over 5% a year in the Irish Republic, whilst its western European neighbours struggle to achieve less than half that rate. The economies of countries such as Italy are even contracting in size.

...official projections have underestimated the number of people required to sustain the economy over the next 15 years

But how far can the tiger run? Ireland cannot expect to be a major beneficiary of EU funding now that poorer nations such as Latvia and Slovakia are making demands on the Brussels coffers. As other EU countries reduce their tax burdens to attract inward investment, Ireland's low level of corporate taxation may even lose some of its shine. And although the continued rise in productivity has meant that relative labour costs have tended to fall, the situation could easily change if a breakdown of the national accords between the government and both sides of industry allowed pay levels to outstrip economic growth.

The biggest future threat to Ireland, however, is a lack of available workers. The latest figures published by Ireland's Central Statistics Service indicate that the Republic's population will rise from 3.9 million in 2002 to around 5.1 million in 2021. This represents an average annual increase of 1.4%. However, only a quarter of this will be due to natural increase from births. A further quarter will be due to an increase in the population of people over 65 years old and the remaining 50% due to inward migration.

If the pool of available labour is rising at only around 1% a year, how can the total economy sustain growth of over 5% a year? In the past, this 'wealth generation gap' has been taken up by increases in productivity of over 2% a year, together with rising levels of employment amongst those aged 15-64. According to the national household survey published on June 9th 2005, the proportion of people in the labour force grew over the year to Q1 2005 from 60.1% to 61.0%. This change was particularly due to a rise in the participation of women aged 45-54. In fact, much of Ireland's past economic expansion has been due to women's increasing willingness to enter the labour market.

During the next 5 years, however, the limit to increased labour force participation will probably be reached. Ireland already has one of the lowest levels of unemployment in the European Union and although an increasing level of female participation could be facilitated by improved childcare provision, the trend for female employment is moving towards part-time jobs. During the last year, more than a quarter of new jobs have been part-time and these have been taken up almost exclusively by women. If this trend continues and more women currently in full-time jobs move across to part-time employment, the local labour pool could disappear altogether.

The only remaining source of labour is from immigration. Official CSO projections indicate that over the period from 2002 to 2021, a total of 520,000 additional immigrants will take up residence in the Republic of Ireland. These will represent an increase of about 10 % in the total population.

Our analysis of official population projections over the next 15 years indicates that Ireland's working population will rise from just under 2 million people today to 2.87 million by 2021. If we assume that productivity will continue to increase by 2% per year and increased labour force participation will take up much of the demand for labour over the next five years before reaching its natural upper limit by 2010, then the working population will have to grow to around 3 million for the present level of economic growth to be sustained. To make up for the shortfall, either fertility rates will have to increase significantly (to offset lower participation rates by women with young families) or immigration will have to rise substantially in excess of current official estimates.

Increased immigration would bring advantages in the form of the high net contribution that highly-qualified immigrants would make to the economy as a whole. They would not be economically dependant for long periods as in the case with those born and raised in Ireland, and savings would also be made on the costs of education. The experience of other EU countries indicates that economic migrants are far less likely to be a drain on the welfare system than those from the native population.

FedEE estimates indicate that, at best, official projections have underestimated the number of people required to sustain the economy over the next 15 years. Much of this increased population will need to come from outside Ireland and because the EU population is likely to contract quite quickly after 2010, the most likely sources will be India, China and the third world.

© FedEE Services Ltd 2008

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