Post-crisis recoveries are often jobless, and there are several factors that contribute to this phenomenon:
- Due to structural changes that take place in the economy during the recession (e.g. collapse of certain sectors) job losses are often permanent, and once the recovery takes hold, workers are not rehired to their previous posts. Since creation of new work places in different firms and industries takes time, job creation lags the recovery in output (Groshen and Potter, 2003).
- Job polarization. Jobs that are being created in the last decade are increasingly either relatively high-skilled and highly paid, or low-skilled and low-paid. At the same time, the middle of the job distribution is hollowing out due to a disappearance of the―routine‖ jobs–those that are easily partitioned into a set of tasks, eventually to be substituted by technology, or moved offshore to take advantage of lower wages (seeAutor et al. (2003) for evidence from the U.S., Goos and Manning (2007) for the U.K., Goos et al. (2009) for a pan-European study, and Acemoglu and Autor (2011) for a theoretical framework and U.S. evidence). Most of these jobs disappear during recessions and do not return thereafter, contributing to the phenomenon of ―jobless recoveries (Jaimovich and Siu, 2012).
- Firm-level restructuring. Organizational changes that take place during the recession result in elimination of unneeded labor, especially among small firms that cannot afford to hoard workers. In addition, small firms are also more likely to close during recessions (Kolsenikova and Liu, 2011). Once the recovery takes hold, small firms may take longer to rehire; also the creation of new enterprises takes more time. In Ireland, firms employing less than 250 workers lost around 17 percent of their personnel, while employment in large firms shrank by 10 percent.
In Ireland’s case, a number of these factors could limit the scale of medium-term recovery in employment, risking a more extended period of high unemployment. Ireland‘s high unemployment rate clearly reflects the sharp drop in domestic demand and economic activity, and an economic recovery is needed reduce unemployment. However, considering the depth of the banking crisis, still high private sector debt burdens, and ongoing fiscal consolidation, domestic demand recovery is expected to be a protracted process. Moreover, while some recovery can be expected even in the sectors hit the hardest by the crisis, such as construction, they are unlikely to rebound to former activity levels.
At the height of the boom, construction sector employed almost 13 percent of workers. During the crisis, this share shrank by more than half. If the share of construction in total employment increased to the EU average of percent, and employment grew by 10 percent in the next medium-term, around 55,000 new construction jobs would be created. With 100,000 fewer jobs in construction, many former construction workers would need to find employment in other sectors. While some have already found new jobs or have emigrated, many may need retraining, such as those who left secondary school early for lucrative work in construction.
Although the tradable sector has greater potential to expand, Ireland‘s current exports are predominantly capital intensive, even in sectors that tend to be domestically owned such as food processing. With the share of long-term unemployment already high, a more extended period of high overall unemployment would risk unemployment becoming structural.