Andy: Beyond Silicon Docks, Many Still Not Seeing Recovery

Ireland’s economic recovery has been largely built on a surge in Information and Communication Technology (ICT) investment and exports. Much of that is clustered around Dublin’s so-called “Silicon Docks”.

My UCD colleagues Sam Brazys and Aidan Regan have highlighted how that boom could be vulnerable to a drying up of cheap financing for these companies (available now due to governments in the US and Europe essentially printing money) and/or to challenges to Ireland’s tax regime.

In new work they have just published, Brazys and Regan lay greater stress on the vital importance of inward migration to the Irish growth model. They also emphasise the way in which an increasingly two-tier labour market is being created.

In early 2016, employment in ICT was 20 percent up on its recession low and less than 4 percent off its pre-recession peak. In most other sectors the jobs recovery was much less dramatic, remaining over 8 percent down on the peak of the pre-recession period.

Wages in the ICT sector have also recovered more quickly and are, on average, 12 percent higher than before the recession hit. This upsurge outstrips that in the rest of the economy by a remarkable factor of 8, leaving average ICT wages 80 percent higher than in other sectors.

In summary, as Brazys and Regan put it, workers in high-tech sectors (especially ICT) “saw the best employment and wage dynamics throughout the crisis and recovery”.

This also means that Dublin (and, to a lesser extent, Cork and Galway) have reaped the biggest gains. Of 143 foreign investments in ICT, two-thirds are based in Dublin. That figure is 60 percent for computer programming and consultancy.

Many ICT workers are drawn from other EU countries, as the jobs often require specific language skills, in particular. However, almost two-thirds of the ICT workforce is still Irish. This is, in summary, an international, highly skilled and highly paid group of people.

By contrast, most other workers – Irish and migrants alike – have seen state services cut and their tax burdens rise, without the “compensation” factor of rapid wage increases. An average working family, with both parents employed, has seen their household wage fall by 3 percent since the recession hit, their income taxes hiked by €6,000, and most of the public services they use retrenched.

Of course, all workers do gain to some extent from the rising numbers and wages of ICT workers – the latter also pay taxes and they spend money in the local economy. On the other hand, their concentration, especially in Dublin, contributes to rising house prices and rents, problems that impact on those not working in such well-paid sectors. (Though the government’s failure to boost the housing supply is a much more important factor here).

Under the circumstances, it was not surprising that most voters in last year’s election were sceptical about slogans such as “keep the recovery going”. What recovery there has been is selective and very concentrated, benefiting certain sectors, regions (Dublin especially) and some workers over others.

Any attempt to restrict immigration and steer more of the better jobs towards non-migrants would be both wrong and wholly counterproductive. Brazys and Regan emphasise that the ICT companies concerned only locate here precisely because they can take advantage of the free movement of labour within the EU to recruit the workers they need.

Trump’s recent immigration restrictions are not only outrageous abuses of human rights, they will likely damage the US economy and US institutions. Post-Brexit immigration restrictions in the UK would probably generate similar effects.

How then might the recovery in Ireland best be broadened? By doing more for those in low-wage and insecure employment (where migrants are also highly represented, often earning less than the minimum wage).

Enforcing existing minimum-wage legislation, moving towards the general payment of at least a living wage, and guaranteeing decent terms and conditions for all workers constitute feasible steps in that regard.

Improving public services and, especially, making housing more affordable would help too. All of which requires proactive state intervention that goes well beyond just luring high-tech investment from abroad.