Labor shortage could declaw Celtic Tiger

By Andrew Bushe

DUBLIN — Ireland is not facing a boom-to-bust scenario like the Asian Tiger economies, but the good times will not roll on forever, an economist has warned.

Dr. Brendan Walsh, professor of economics at UCD, said labor shortages would cause increasing economic problems as most Irish emigrants who wanted to come home had already done so and there had been a huge unrepeatable surge in the number of women working.

"There is no hard landing in prospect provided the world economy does not go into a deeper recession and particularly if the American economy continues to grow," Walsh said.

Writing in the spring edition of the Irish Banking Review, Walsh said he expects growth to slow down to about 3.5 or 4 percent and wage inflation to affect competitiveness. He said wages in construction, manufacturing and the public sector have been drifting up way ahead of levels agreed in the partnership guidelines.

"I think that just reflects the tightness in the labor market, the difficulty people are having in recruiting the workers that they need to continue to fuel the growth in the economy," he said.

Walsh said growth rates of 6 to 8 percent in the last six years had been really exceptional and not necessarily the most desirable from a social and broader economic perspective.

He said the economy had mopped up all the available reserves of labor and Ireland’s labor supply was not as elastic as it had been.

The rise in the number of women at work had brought the country from a situation where it was way below the European average to slightly above it.

"That particular reservoir of labor has also been mopped up and future increases can only come at the cost of increasing wages rates from people who have to meet rising transports costs, child-care costs and other related costs of getting back into the labor market," Walsh said.

"In the same manner as we have mopped up the reservoir of women who were interested in coming back into the labor force, we have now mopped up much of the reservoir that was out there in terms of recent Irish emigrants in Britain and in America interested in coming back to Ireland.

"Increasingly, if we want to fuel the growth in the labor force from that source we will have to look to people who have had no previous connection with Ireland."

Walsh said the expansion of the Asian Tiger economies had been on "fairly shaky foundations" compared to Ireland’s Celtic Tiger.