EOIN BURKE-KENNEDY

The rate of jobs growth in Ireland’s post-crash economy is confounding economists, not least because it is coinciding with a contraction in economic growth.

In the aftermath of recession, employment can typically lag a recovery in demand as firms expand operations but remain cautious about hiring new staff.

This can produce a period of jobless growth - a phenomenon which plagued the Irish economy in the early 1990s when multinationals increased output but unemployment remained stubbornly high.

The complete reverse of this, however, is now under way in the Irish economy with employment accelerating at pace while domestic demand, most likely because of a decline in disposable income - remains stagnant.

Essentially, we’re witnessing a period of “growthless jobs”.

Against all predictions, the Irish economy created 60,000 new jobs last year, a credible performance by any yardstick.

The growth represented a claw back of about 18 per cent of the total number of jobs lost during the economic crisis, and returns the labour market to an employment level last seen near the end of 2004.

It was achieved, rather confusingly however, alongside a 0.2 per cent drop in gross domestic product (GDP) and a 1.1 per cent contraction in domestic demand.

In its quarterly economic bulletin, published yesterday, the Central Bank admitted to being perplexed by the issue.

It said the recovery in employment had taken hold “surprisingly quickly and at faster pace than previously envisaged”.

On that basis, it predicted the country’s jobless rate would fall from 13.1 per cent in 2013 to 11.3 per cent this year, and to 10.4 per cent in 2015.

Such strong employment growth would not normally be observed until the labour intensive domestic demand recovered, the bank said.

“It had been expected that recovery in employment would lag that output as firms tend to increase capacity utilisation and hours worked before they begin to hire again.”

One possible explanation might be the volatility of output in the pharmaceutical sector arising from the expiry of a number of patents.

The scale of the problem is perhaps best illustrated by drug giant Pfizer, which saw profits fall $5.5 billion in 2012 largely on the back of a 60 per cent decline in sales of its blockbuster cholesterol drug Lipitor, most of which is produced here.

Such massive profit contractions undoubtedly have a distorting effect on the country’s GDP numbers.

Minister for Finance Michael Noonan has stated on several occasions the underlying trends in the economy were at odds with the GDP numbers.

In its bulletin, the Central Bank said that while the initial surge in jobs growth was confined to part-time positions, the last few quarters had witnessed a steady growth in full-time employment, which was spread over a broad range of sectors.

Nonetheless, the official figures from the Central Statistics Office, suggest some 32,700 of the new jobs - created in the past five quarters - have been in agriculture. This has raised its employment share to 6.1 per cent - above both long-term and international norms.

However, the CSO suggests caution is warranted in interpreting sectoral trends in employment within agriculture due to its sensitivity to sample changes over time.

Another possible explanation for the “growthless jobs” conundrum offered by the Central Bank was the strength of recovery in Ireland’s main trading partners, namely the US, UK and the wider euro area.

While noting that recovery in the GDP growth and in the labour market in both the US and UK had outstripped the euro area, it said previous research indicated Irish employment was more responsive to a given external GDP shock, if the shock was UK based.

In the long-run, its research suggests, both economic growth here and employment increase by around twice as much in response to an increase in UK GDP in contrast to a similar US-based growth stimulus.

“These results could provide some explanation for Ireland’s employment recovery and suggest a positive outlook for employment growth given the short-term prospects for the UK economy,” it said.