However, the labour market has continued to show resilience, and the unemployment rate has remained low. The latest data shows Northern Ireland’s unemployment rate at a record low of 1.6%, having continued to move downwards throughout 2024.

At first glance, comparing to the UK where the unemployment rate (those currently out of work but looking for a job) is 4.4% and with Ireland where it is 4.0%, it might appear that Northern Ireland is operating closer to “full power” than its neighbouring economies.

However, looking more closely at the labour market, we can see that among these three economies, Northern Ireland has continued to report the smallest rate of people employed (those in work), despite this rate having risen in recent years. Both the UK and Ireland have an employment rate around 74%, while Northern Ireland lags behind at about 72%.

How is Northern Ireland’s unemployment rate so low, but we still have a smaller rate of people in jobs?

The answer lies in the high number of people who are recorded as economically inactive (those not in work and not looking for a job). While this has been an age-old challenge in Northern Ireland, there has been a recent shift in the structure of inactivity post-Covid. Now, there is a higher proportion of working-age people who are due to long-term sickness, and a lower proportion of people who are caring for family or the home, or retiring early, potentially reflecting a wider shift across society.

This structure of the labour market, particularly our low unemployment rate, has implications for the people, businesses and economy of Northern Ireland.

Looking at the impacts on people, theory suggests that they are more confident when unemployment is low as they tend to feel more secure in their job and are therefore more comfortable in spending money and making bigger purchases, like a car or a holiday.

Our Danske Bank Consumer Confidence Index for Northern Ireland is based on four measures – current finances, future finances, job security and expected spending on expensive items. Of these, confidence around job security has shown the least change since the survey began in 2008. This shows that how local people feel about their position in the labour market tends to be relatively more stable. Perhaps this is because the unemployment rate has been generally moving downwards since 2013, and that we have a relatively larger proportion of people employed in the public sector.

Instead, confidence around current finances, future finances and expectations of spending on expensive items has been much more prone to fluctuations and has reacted to factors beyond movements in the labour market.

This would suggest that there are other important factors that impact people’s confidence here in Northern Ireland. For example, high inflation and elevated interest rates have had negative impacts on peoples’ confidence in recent years.

For businesses, the impacts of a low unemployment rate are clearer. Hiring from a very small pool of potential employees lowers the chances of being able to match the right candidate to the necessary skillset for the role, especially for highly skilled and niche areas.

The Northern Ireland Chamber of Commerce and Industry and BDO Quarterly Economic Survey consistently reports the hiring difficulties faced throughout the manufacturing and services sectors, with the latest Q4 2024 survey suggesting nearly 8 out of 10 such firms are having difficulties recruiting.

And the latest Skills Barometer from Ulster University suggests that there could be continued difficulties regarding recruitment, with the report outlining an estimated shortfall of around 5,400 individuals a year to fill vacancies over the next eight years in its high growth scenario.

If businesses can’t access the skills they require, that can weigh on productivity and ultimately on economic output levels over the longer-term.

A new macroeconomic model, created by the Economic and Social Research Institute and the National Institute of Economic and Social Research, supported by Ibec, has suggested that the economic growth rate in Northern Ireland could slow from its current levels over the coming years, in part due to the expected fall in the number of people in the labour market.

To overcome these challenges and improve the long-term potential capacity of the economy, what we need is a further increase in the rate of people who are in employment and an increase in the rate of people not in a job but who are looking for work.

A rise in the unemployment rate here wouldn’t necessarily mean that people are losing jobs, as this could occur alongside the continued jobs growth that is expected in Northern Ireland. Instead, it could mean that more people are moving out of inactivity and into the labour force to find jobs – the latest data suggests that about 40,000 people who are currently economically inactive would like to work – or potentially that there are more working-aged people moving into NI.

A greater number of people starting to look for work should make it easier for businesses to hire the people they need across all levels of qualifications, improve the long-term capacity of the economy and therefore also boost the confidence levels of people who live here.

This article was published in The Irish News on 4 March 2025.