According to the OECD the challenge for Government is to define a new balance between fiscal consolidation and at the same time helping the people most in need of employment assistance which include young people, long-term unemployed and those with low or obsolete skills.
Reduction of hours v Job losses
Unlike other European countries, Ireland’s decline in labour demand was almost entirely accommodated by job losses rather than average working hours reductions. This is explained by the relatively low cost of hiring and firing in Ireland and the large number of job losses in the labour intensive construction sector. Total hours worked declined by 11.8 percent in the three years to the last quarter in 2009 which corresponds to the similar drop in real GDP, which declined by 12.5 percent.
Unemployment increased to 13.3 percent in May 2010 from 4.4 percent in August 2007 and the OECD predicts that recovery is unlikely to reabsorb rapidly the current high numbers of the unemployed. There is a significant risk that this increase in unemployment becomes structural with many long-term unemployed becoming permanently disconnected from the labour market.
Export led recovery and pay cuts
The OECD argues that in order to avoid structural high unemployment, an export led recovery must be strong and that cutting pay for workers may well be necessary to achieve this aim. Pay cuts would have to be balanced with a reduction in the value of social welfare payments so that low-skilled workers are not further discouraged from seeking work.
Avoiding welfare dependency
Job-search incentives need to be strengthened to avoid welfare dependency. The decrease in the value of income support allowances and especially to those aged under-25 has helped to ensure that incentives for work do not fall further. Job-search and training requirements also need to be more strictly enforced with the reforms being considered in this area likely to achieve this aim. Moreover, an increase in resources for job assistance services needs to be implemented as only limited resources are available to help jobseekers back into work. Currently while the number of jobseekers registered with the FAS has increased by 45 percent between 2007 and 2009, staff levels at FAS have only increased by 5 percent.