Jordan Buchanan: Northern Ireland jobs market in a state of flux but it's not all Brexit doom and gloom
The labour market continues to defy expectations, at least judging by the upbeat official data with the employment rate at an all-time high. However, there appears to be a growing disconnect between encouraging official data and concerning gloomy job announcements.
It is rare that a week goes by where there isn't a news story about significant job losses, notably in the manufacturing sector or technology displacing the need for human workers.
Last month the Office for National Statistics (ONS) released employment data for the final quarter of 2018 which saw the creation of a staggering 10,600 jobs in Northern Ireland.
To date, there are 821,000 working age people in employment in Northern Ireland, up more than 35,000 since peak levels before the financial crash.
Local employers deserve particular credit with the vast majority of jobs created in the private sector.
The employment rate of 70.3% alongside a low unemployment rate of 3.9% has suggested that the economy is approaching 'full employment' - an economist's term where everyone who is able and willing to work is employed.
For context, the combination of the employed and unemployed make up the economically active cohort of the population.
The remainder is comprised of individuals who are classified as economically inactive for a range of factors such as long-term illness or early retirement etc.
However, about 20%, or 64,000 people of the economically inactive have expressed that they would like a job, if the conditions were right.
Northern Ireland's persistently high level of economic inactivity is well documented and recognised as a key economic policy priority.
To illustrate the scale of the challenge, NI's economic inactivity rate has been the highest of all UK regions in 97 of the last 107 quarters of data (since published estimates began).
Nonetheless, this pool of available labour may dispel any myth that the economy is approaching full employment.
The UK employment rate of 76% is significantly higher than Northern Ireland's and reaches as high as 80% in South West England.
Some simple analysis highlights that if Northern Ireland's unemployment and economically inactive who want a job was halved, there would be an additional 50,000 jobs and the employment rate would be 74%.
This suggests that despite the recent labour market success, there may be scope for continued expansion.
However, skills shortages are becoming more of an issue, especially as the possibility of importing a workforce solution reduces.
The latest CBI/Pearson education and skills survey suggests that two thirds of businesses are concerned there will be a lack of sufficiently skilled people to fill roles.
Getting more people into work has economic benefits beyond those for the individual and their families/wider community.
An increasingly tight labour market will feed through to higher levels of wage growth across the whole economy.
In economic theory, the model known as the Phillips curve works on the premise that as the pool of available labour shrinks, firms have to offer higher wages to attract staff, which in turn puts upward pressure on prices (and in turn inflation).
Recent economic experience is indicating that wage growth is feeding through at a faster pace than inflation.
Last year, a typical full-time worker's annual salary increased by £1,000, or 4.0%.
Over the same period the rate of inflation grew by 2.5% meaning workers received a 'real' pay increase of £400 once inflation is removed from the calculation.
More timely data for Great Britain suggests wages are currently growing at close to 3.5% against an inflation rate of 1.8%.
In Ireland, wages are growing at more than 4.0% against particularly low levels of inflation at only 0.7%. The inflation/wage dynamic will be critical to the economic outlook.
Clearly Brexit (I got so far without saying it) will have an impact on economic growth and the jobs market.
Irrespective of the long term impact, whether good, bad or indifferent, consumers have already experienced the short term effects.
Sterling's depreciation accelerated inflation from 0.5% in June 2016 to 3.1% in November 2017, squeezing household finances.
Looking forward, the latest consensus forecasts across the UK suggest wage growth will remain in the 2.5%-3.0% range.
Inflation is expected to remain at stable levels marginally below 2.0%, albeit with the rather sizeable caveat that a No Deal Brexit is avoided.
The labour market is entering a phase of rapid change and changing workforce patterns will continue to emerge.
People are working shorter hours than previous years, be it enforced or voluntarily, meaning they are likely to work longer over their lifetime.
Part-time workers now account for one in every three jobs in the economy, and automation and technology will disrupt certain industries.
Looking at the sectoral breakdown of data, there are now jobs in the economy which didn't exist 15 years ago when the ONS made the sector classifications. Who knew what a cloud architect or a data scientist was back in the mid 2000s?
Change will always present new opportunities and the broad based nature of the labour market expansion has been hugely encouraging.
A tighter labour market which puts upward pressure on wages is healthy. The skills shortages employers face due to low levels of unemployment are a challenge, but a nicer one to be facing. Consumers have been the engine of growth for Northern Ireland, driven by high levels of job creation. Should the level of job creation slow, it is critical that wage's continue to grow above inflation.
The final outcome of Brexit, particularly the exchange rate response, will be of utmost importance for the wage/inflation dynamic in the coming months.
- In next week's Economy Watch, we hear from Ulster Bank's Richard Ramsey