WHEN UNEMPLOYMENT DISAPPEARS: IRELAND IN THE 1990S BRENDAN WALSH CESIFO WORKING PAPER NO. 856 CATEGORY 4: LABOUR MARKETS FEBRUARY 2003 PRESENTED AT CESIFO CONFERENCE ON UNEMPLOYMENT IN EUROPE: REASONS AND REMEDIES, DECEMBER 2002 An electronic version of the paper may be downloaded • from the SSRN website: www.SSRN.com • from the CESifo website: www.CESifo.de CESifo Working Paper No. 856 WHEN UNEMPLOYMENT DISAPPEARS: IRELAND IN THE 1990S Abstract This paper examines the behaviour of the Irish labour market during the 1990s. Over the course of the decade the Irish unemployment rate fell from the highest to the lowest in the EU. Over the same period a record number of jobs was created and all the indicators suggest that full employment was achieved. The primary reason for this “employment miracle” was the output boom, which in turn may be attributed to Ireland’s “super competitiveness” in the late 1990s. Several factors contributed to this – a low exchange rate, the inflow of FDI to high productivity sectors, and wage moderation following the return to centralised wage agreements in 1987. Labour market reforms, including a tightening of the social welfare regime and a switch of spending from income support to active labour market policies, played a positive role. The fact that unemployment has risen only slowly during the current downturn points to the lasting effect of these changes. JEL Code: J4, J3, N3. Brendan M. Walsh Department of Economics University College Dublin Dublin 4 Ireland
[email protected] I am grateful to Mark Berger, David Grubb, Cormac Ó Gráda, Philip O’Connell, and Frank Walsh for helpful comments.