EMPLOYMENT TAKES A DOWNTURN

2007 will be the worst year on record for job creation in small firms, Linda Pearson reports.

The Bank of Ireland Business Start-Up Barometer for the first quarter of this year shows over 5,000 companies were established in the first quarter. While this is great news for the economy, a Small Firms Association (SFA) National Employment Survey released around the same time would indicate that this year will be the worst on record for job creation in small businesses. While the Bank of Ireland Barometer shows Irish company creation and the level of entrepreneurship continues to be exceptional, the SFA employment survey forecasts small businesses will only create 7,787 additional jobs this year in comparison to over 50,000 last year.

Damning Findings

Patricia Callan, Director of the Small Firms Association says the survey throws up some question marks about the state of our economy. “This is the worst survey ever in the 13 years we’ve been doing it. There will be 8,000 new jobs created this year but that’s compared to 50,243 last year. We still have over two million people at work and we’ve gone from one million to two million in a decade. However, it would cause question marks in terms of what’s happening in the economy and whether this is a soft landing or a downturn, and if we can manage it effectively,” explains the director.

SPIRALING COSTS

Some of the reasons for the fall in employment creation include high inflation and labour costs, teamed with a lack of unskilled workers. The move towards a knowledge based economy through technology as opposed to labour-intensive is another reason but Callan says that is a positive move. “Even though the job creation numbers are so bad at least 65% of companies are optimistic about expansion plans towards a knowledge based economy which is one of our key targets in Ireland,” says Callan. Emer McDonnell, Business Banking Recruitment Manager, Bank of Ireland, believes while these reasons are taken into account by entrepreneurs, entrepreneurship is still considered a good career with high numbers choosing to set up shop anyway. She also believes, despite the employment survey findings, that the outlook for the economy is bright. “Many new Irish businesses start small and will remain small, particularly over the short to medium term. However, as with all enterprises, growth and employment prospects will need to be measured against the performance of the business and economy. Issues such as inflation and labour costs will become particularly key for entrepreneurs wishing to expand their business four or five years after start up. Over 5,000 limited companies registered in the first three months of this year, which represents a continued positive outlook for our economy,” explains McDonnell.

Unrealistic Expectations

Companies who are prepared to create jobs are also hampered by lack of skills and unrealistic wage expectations. All of these factors accumulated severely impact on the ability of Irish business to create jobs and represent structural flaws in business models here. “We have all these worrying factors and businesses are less certain and not going to expand and create jobs unless they think there is a long term future and at the moment there is a high degree of uncertainty,” commented Callan.

INFLATION SITUATION

The annual rate of inflation remains a massive 5% here and is more than double the average rate for leading industrialised countries. As a result, Ireland has become the most expensive country in the euro zone and the second most expensive in the European Union. This inflation rate has a detrimental knock on effect on small businesses. “At the end of the day the inflation figure is running over 5% which is just unacceptable and is particularly damaging to businesses. You have very high labour and energy costs, local authority charges, all of which are in the government’s control. These things are all adding to the inflation figure. You can’t have wages and inflation spiral. That’s something definitely within the government’s control and they need to tackle it,” remarked Callan.

The director also says that, “there can be no doubt that employment creation in the private sector has ‘hit a brick wall’ and that under current conditions there will be a very significant downturn in employment creation in 2007.” Despite the worrying statistics, the SFA employment survey does have some positive aspects with the number of companies willing to recruit staff under flexible working arrangements increasing by 5% to 77%, and 65% of companies plan to expand their business in 2007.

Published in the July/August 2007 Issue of Irish Entrepreneur