Unemployment rate falls but for the wrong reasons?

During the three months to February 2017, Northern Ireland’s unemployment rate fell by 0.4 percentage points to 5.2% (UK = 4.7%). This represents the lowest unemployment rate since the period September – November 2008. Meanwhile, Northern Ireland’s youth unemployment rate (18-24yrs of age) dipped below the 13% mark for the first time in 7 years.  At 12.9% (UK = 10.4%), this is almost half the rate that prevailed at the peak in Q3 2013. Surely, cause for celebration?

unemployment rate

At first glance, the logical assumption is that these are positive developments and evidence of a strengthening labour market. Further analysis, however, reveals that this is not the case. Indeed, the fall in the unemployment rate is largely for the wrong reasons. Instead of being driven by rising employment, the Labour Force survey (LFS) highlights falling employment and rising economic inactivity. Furthermore, these trends are most prevalent in the younger generation.

Northern Ireland’s economic inactivity rate (defined as the proportion of those neither in work or looking for work as a proportion of the working-age population) hit a record low of 25.7% last summer.  Since then economic inactivity has been on the rise. In the latest 3-month period to February 2017, the number of economically inactive of working-age (16-64yrs) has increased by 18,000 or 6%. The year-on-year increase (+4.3%) represents the steepest rise since Q3 2009. Granted economic inactivity is coming off a relatively low base. Nevertheless, this labour market indicator will be closely watched in the months ahead as a sign of a weakening in the labour market.

Looking at the specific reasons provided in the LFS, it is noted that there is a 10% y/y increase (+7,000) in those reporting themselves as economically inactive due to long-term sick. The number of people classed as economically inactive due to family / home care responsibilities has fallen by almost 12% y/y too.  Meanwhile the number of inactive categorised as retiring early has fallen to a near 14-year low (-15.6% y/y). Early retirement is clearly not quite as affordable as it used to be.

Looking at the latest period (3-months to February 2017) for the 18-24 years of age cohort, the number of economically inactive increased by a 25% over the last year and by 11% over the last quarter.  This is the steepest rise of any age-group by quite some margin. It is not clear where exactly this younger generation are going to. Similarly, those aged 18-24 years of age also recorded the steepest fall in employment (-5.2% y/y or 5,000) of any age category. Therefore in light of these developments, the fall in the headline youth unemployment rate to a 7-year low has a rather hollow ring to it.

Analysis of the employment trends in the Labour Force Survey reveals a slowdown in job creation in late 2016 with a 0.7% y/y decline in the 3-months to February 2017. Delving a little deeper highlights diverging trends between types of employment. The number of employees in Northern Ireland fell by 3.4% y/y in the 3-months to February 2017.  This marks the steepest annual decline since Q2 2009. Full-time employment has posted year-on-year declines since late-2016 with a 2.2% decrease in the 3-months to February 2017. Conversely, the employment categories that are still expanding are the self-employed and part-time work.  The former posted a robust 12.7% y/y rise in the latest period. Meanwhile part-time employment growth, while slowing, still managed to increase by 2.5% y/y in the latest period.

Ni Employment

2016 was a good year for the Northern Ireland labour market.  2017 has got off to a good start as far as the unemployment headlines are concerned. Closer analysis, however, suggests that labour market conditions are softening rather than improving. Time will tell.

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