The transformation of the Irish labour market : 1980-2003

Traditionally characterised as a labour-surplus economy, Ireland was transformed during the 1990s. An impressive rate of employment growth led to a reduction in the unemployment rate from 15.7% to 4% between 1988 and 2004. Over the same period, labour force participation rates rose markedly and emigration was replaced by a rising net inflow of population. The improvements in labour market outcomes were widely spread across regions, age groups, and educational levels. Employment in agriculture and traditional industrial sectors continued to decline but rapid employment growth occurred in newer manufacturing sectors such as electronics, pharmaceuticals and medical instrumentation, construction, tourism and internationally traded financial sectors. This paper attributes the remarkable transformation of the Irish labour market to a combination of favourable demand side shocks, an elastic labour supply, a growing stock of human capital and a successful return to centralised wage bargaining. The role of structural labour market reforms is discussed and it is argues that their role in the transformation of the labour market was relatively minor.