Labour shortages are biting across the economy. What does this mean for you as an employee?

Interest rates are on the way up. World economic growth is slowing. The tech sector is rationalising, Households are feeling the pressure from rising prices.

But there are no signs of any of this knocking on to a slowdown in the Irish jobs market. Employers in many sectors still report serious labour shortages and – together with the cost of employing the people they have – this is a crunch issue heading into the autumn.

It also puts employees in a strong position in many cases, whether they want to stay where they are or move on to a new job.

The evidence

We know from recent data that the Irish jobs market remains strong. A record 2.643 million people were at work in the second quarter, up 3.5 per cent year on year, according to the recent labour force survey figures from the Central Statistics Office (CSO).

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The employment rate – the percentage of people in the population between 15 to 64 who are in work – rose to a record high of almost three in four.

Quarterly labour force figures – and a separate CSO series based on Revenue data – suggest jobs growth has slowed in recent months. But this may be as much due to inability to find workers as to less demand, with the exception of the tech sector, where there have been some well-publicised lay-offs.

Even in tech, however, total job numbers remain steady, down just slightly on the start of the year.

What are employers saying? A recent survey by the Chartered Institute of Personnel Development (CIPD) and the Kemmy Business School in the University of Limerick, show that 90 per cent of businesses say they are facing a deficit in talent, up from 85 per cent the previous year.

Nearly four out of 10 said they are experiencing significant skills shortages. Front-line and operations staff are in particular short supply – as reported by nearly half of the respondents to the survey, while IT skills remain scarce, too, though the squeeze here has eased a bit following the recent lay-offs in the sector. The shortages cross a range of types of businesses, with the non-profit sector and the public sector among the worst hit.

Speaking to The Irish Times Business Podcast this week, Mary Connaughton, director of the CIPD, said that the survey also showed signs of increased employee turnover, with strong competition for experienced and more talented workers.

While recent surveys have shown some fall-off in demand for professional services jobs – possibly linked in part to the pullback in the tech sector – there is still pressure on employers holding on to talent in these areas, while the finance sector remains strong. It recorded annual earnings growth of 7.5 per cent in the sector quarter – earnings in the public sector, meanwhile rose 6 per cent.

Further reflecting a tight market, the job vacancy rate was just 1.3 per cent in the second quarter of this year. Employers are snapping up talent when they can get it.

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And in many cases this is talent from abroad, with more than 18,000 work permits issued in the first seven months of this year, well ahead of the pre-pandemic levels, with 14,000 granted in the whole of 2019.

Healthcare remains the top area for employment permits, followed by accommodation and food, finance and IT. And this is despite the problem of finding housing in Ireland.

Employee turnover, meanwhile, is on the increase.

While “The Great Resignation” that was spoken of internationally in 2021 during the peak of Covid never quite hit Ireland, more employees are taking stock.

One senior manager has dubbed it as “The Great Reconsideration”. Under 5 per cent is no longer the most common turnover rate in businesses surveyed by the CIPD, with the figure rising to between 10 per cent and 20 per cent.

The implications

The intense jobs squeeze has big implications for companies – and for their employees. With the exception of tech, where recent lay-offs and lack of new hiring from big players is having an impact, in many others it remains an employees’ market.

This covers many areas of the market. Following a report earlier this week that big four accountancy companies were finding that many staff left after they completed their training, Connaughton said that across professional services and more widely – for example in many areas of healthcare – holding on to younger staff who have just qualified remained an issue.

In part this appears to reflect a fallout from Covid; many younger people missed out on plans to travel because of the pandemic and now want to take the opportunity. The high cost of housing in Ireland is also, as has been well reported, encouraging some to move, as is more attractive earnings overseas in some professions.

For many still in Ireland, Connaughton says that apart from earnings and job prospects, issues like diversity, inclusiveness and sustainability policies are also bigger for many younger employees, providing challenges for management.

And so is flexible working. Labour shortages have helped to embed flexible working practices, with nearly seven in 10 companies who can facilitate flexible working reporting that they operate a model obliging employees to be on site either two or three days a week.

A significant number, particularly in the private sector, say it is variable model, suggesting that employees are expected to attend for specific reasons, rather than on a set number of days. In a related finding, as well as better career progression and cost of living issues, burnout and work-life balance are reported as important reasons for job moves.

[ Remote working: A quarter of Ireland’s workers now operate from home most of the time ]

[ Younger people’s expectations of work are vastly different – and employers need to get on board ]

Anecdotal evidence, meanwhile, shows labour shortages and costs are key issues. In bigger businesses across the country, labour shortages are “really starting to bite”, according to one source, forcing many to offer more flexible working policies.

Meanwhile, despite talk of an international slowdown, it appears that multinationals in many sectors, such as life sciences and pharma, are continuing to add capacity in Ireland, leading to increased labour demand in the years ahead. And construction continues to face major shortages, with a recent survey from recruiter Morgan McKinley saying that some one in four jobs in the sector remain unfilled.

The policy issues

The jobs market will be the key leading indicator in the months ahead about the strength of the Irish economy. At some stage, the shortages may lead to a slowdown in investment and expansion – as companies either cannot find staff or face costs that are too high. This would be the normal economic cycle when growth would then slow along with labour demand.

Higher costs are another reason for caution. The recent 11 per cent increase in the recommended minimum wage – and the knock-on implications of this for wages in other areas – are really big issues for the costs facing employers, particularly in areas like hospitality and manufacturing.

The labour shortage also again highlights the economic impact of the housing shortage and the high costs of rents. It is remarkable that so many people continue to come to Ireland to work, despite the high cost of accommodation.

But employers report that this is now a crunch issue, with some resorting to finding or purchasing accommodation for their own employees and many complaining that this is a really difficult issues for employee attraction and retention. Furthermore, the shortages of construction workers make it harder to build more houses. It all points to a very hot jobs market, which will be vital to watch heading into 2024.