Sharon Donnery: Remarks to the Irish Economic Association
annual conference
Remarks by Ms. Sharon Donnery, Deputy Governor of the Central Bank of Ireland, to the Irish
Economic Association Annual Conference, on the occasion of the Irish Society for Women in
Economics (ISWE) Launch, 6 May 2022.
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Ladies and gentlemen, it is a pleasure to be here today giving the introductory remarks for the
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Irish Society for Women in Economics (ISWE) Networking & Strategy Launch. I would like to
thank the organisers for the invitation and the opportunity to mark the occasion. I believe ISWE
can be a positive force for the economics profession and the Central Bank of Ireland is delighted
to lend our support to this initiative.
I plan to give some of my perspectives on the importance of diversity, both in general and in
economics, but given I am at the Irish Economic Association Annual Conference, first I am also
going to take the opportunity to discuss the Irish economy.
Latest economic outlook
Last month, the Central Bank of Ireland published our latest view on the Irish economy through
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our second Quarterly Bulletin of the year. Broadly speaking, the economy is continuing to
recover well from the effects of the pandemic. Modified domestic demand grew by 6.5 per cent in
2021 and is now above pre-pandemic levels.
However, the Russian invasion of Ukraine has of course become a major factor. While this is
first and foremost a humanitarian tragedy for the Ukrainian people, the economic consequences
of the war are being felt across Europe through higher inflation, as well as greater uncertainty
and negative sentiment effects. Ireland will continue to feel these effects, albeit not as directly as
some other European countries. Headline inflation is projected to average 6.5 per cent this year,
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reflecting particularly high energy price inflation.
The effects of inflation will be felt across the Irish economy, although more strongly for some
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households than others. Cost of living increases from higher food and energy prices tend to be
proportionally larger for lower income, older and rural households, who typically spend more of
their weekly outgoings on these products. How best to respond to current inflation being above
target is a key challenge for central banks. As President Lagarde recently outlined in the context
of the euro area, the Governing Council of the ECB "will maintain optionality, gradualism and
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flexibility in the conduct of monetary policy".
In this context, a key concern for policymakers is the potential of a wage-price spiral. For Ireland,
we expect a tightening labour market over the next few years. With that, broader-based wage
growth consistent with economic fundamentals is welcome, especially as real incomes are likely
to fall this year. What we will monitor closely is whether growth in wages or profits are detached
from underlying productivity growth or are responding entirely to the current high rates of inflation.
This would increase the likelihood that harmful higher inflation becomes embedded in the
economy.
The recovery in the labour market
Understanding developments in the labour market is key to assessing the current health of the
economy more broadly as well as its likely future prospects and I will now discuss the Irish labour
market in more detail.
The labour market has recovered strongly in line with the rebound in economic activity from the
easing of pandemic-related restrictions. In the fourth quarter of 2021, there were almost 150,000
more people employed than pre-pandemic. This is actually above the levels of employment that
we were forecasting before the pandemic in 2019. The recovery has happened at a time when
the ability of people from outside Ireland to come here for work has been curtailed, suggesting
that new participants, who were previously resident in Ireland but outside the labour force, have
found employment.
This is borne out in the data, which shows that employment growth is being driven by higher
labour force participation, particularly for female and younger workers. Forthcoming research
from Central Bank economists analyses this somewhat surprising surge in labour force
participation and whether women and younger people are entering the labour market in high
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numbers due to falling barriers to entry or due to more predictable cyclical and cohort effects.
In other words, has the increase in domestic participation occurred due to structural shifts in
work patterns related to COVID-19, for example remote working, or the combination of the very
strong post-pandemic economic recovery and employment expansion in jobs that typically attract
younger and female workers?
To try and answer these questions, our researchers have used labour market microdata
provided by the Central Statistics Office to identify the flows underpinning the changes we have
seen at the aggregate level. These flows include individuals moving from outside the labour force
(inactivity) to inside (participation), or from unemployed to employed or vice versa. Generally, in a
period of economic growth, as we have now, net flows from inactivity to the labour force would
be expected to be positive, due to greater opportunities to take up a job in the economy.
This has been the case during the recovery from the pandemic and the scale has been striking
compared to historical data. Quarterly net flows from inactivity to the labour force prior to the
pandemic ranged from about minus 30,000 to plus 70,000. In the second and third quarters of
last year, in contrast, positive net flows of about 130,000 were observed.
Examining flows of workers from inactivity to the labour force by gender and age cohort, shows
the increase is driven disproportionately by young workers, men and women under 25, and by
women between the ages of 35 and 59. One might expect that pandemic-induced changes in
work practices could be important for these particular sub-sets of the labour force. However, our
analysis shows that this does not appear to be the primary factor driving the increase in their
employment, at least through this phase of the recovery. For younger workers, the strength of the
recovery has driven increased participation, pointing primarily to a cyclical explanation for the
increase as opposed to a structural change. While for women, increased participation is part of a
longer-term trend driven by a "cohort effect".
Previous research has shown that female participation depends on both age and cohort effects.
The age effect describes the feature of all labour markets where a woman aged 30 is more likely
to participate in the labour force than a woman aged 20. This is similar for males and is a result
of 20 year olds being more likely to still be in education. The cohort effect is that a woman aged
40 in 2022 is far more likely to participate than a 40 year old woman in 1998. Her cohort, or the
year in which the woman was born (1981 vs 1958 in my example), is capturing the effect of all of
the societal changes around female participation in the labour force over those years. This cohort
effect has been particularly strong for female employment in Ireland, and female participation still
has a way to go - but developments in recent quarters have brought us closer to our international
peers.
The increase in female labour force participation is affected by the same cyclical factors affecting
younger cohorts. However, it is also simply the result of a positive long-term change in the Irish
economy. That is, the increasing number of women participating in the labour force. So while the
pandemic is likely to have effects on the labour market for some time to come, there appear to
be other important reasons behind the surge in labour force participation that has been observed
over recent quarters.
Diversity in Economics
And turning now to why we are here today, while there are many reasons behind the huge
change in the Irish economy over recent decades to becoming a relatively prosperous economy,
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making the most of the talent and skills in our economy is certainly one of them. I believe that
moving towards an economy where women have as much opportunity to participate in the labour
market as men has been a key part of that.
Diversity, including but not solely with respect to gender, is important for a number of reasons.
Diversity can help move us away from groupthink, poor risk assessment and insufficient
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challenge. And diversity needs to be taken into account on many levels, from the decision
makers in firms and on boards, to policymakers, to students and to the very data we collect.
Diversity also matters for organisations like the Central Bank because we are more likely be
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effective if we represent the people that we serve. Ensuring that we have diverse perspectives
that represent the societies in which we operate guards against blind spots in our thinking and
policymaking.
From my experience, the economics profession has followed a similar path to the wider
economy, with women entering the profession in larger numbers in recent years and decades.
However, there is still certainly some way to travel. For example, we know that the proportion of
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women studying in economics is below 40 per cent. As another example, almost 2 in 5 of the
Generation Euro competition entries the Central Bank received this year had at least one female
author. In my own organisation, we have seen the proportion of women applying for roles in
economics is lower than in some other areas of the Bank. We are continuously working to
ensure we meet our goals with respect to diversity, and supporting efforts across the economics
community in Ireland to ensure female students see economics as an attractive career choice.
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If you will indulge me for a moment, I will tell you a little about my career.
When I joined the Central Bank of Ireland as an Economist in 1996, it had just under 600 full-time
staff, 13 divisions and a senior management team of just 8 people. If you saw the organisational
chart, you would see that there were no women on the senior management team and not even
one woman at head of division level. The 'norm' was that leaders in the Central Bank of Ireland
were male. This was due to a number of factors: history, culture in Ireland, culture in the
discipline of economics, and culture in the Central Bank itself.
The effects - although subtle - definitely affected me in that there were no female role models,
no one I could aspire to be like. All that changed, when in 2001, a woman was appointed as the
first female Head of Division in the Central Bank and we have had a number of senior female
appointments since. This changed my point of reference, and I know the reference points of
many other senior women in our organization.
I have since been privileged to hold significant positions of public service at both national and
European level. Looking back, one influential aspect was having people at senior levels to whom I
could relate, and who I could see as role models. That made a difference in my career.
I think the foundation of ISWE and the work that is planned over the next few years can make a
really positive contribution moving forward for female economists working across academia,
public institutions and in the private sector. Making progress is not something that will be
achieved overnight, but I believe concrete steps to move towards greater gender balance will be
very beneficial over time. ISWE is something that I wish had been in place when I was thinking of
becoming an economist and starting out in my career.
To conclude, I would like to again express my personal support, and the support of the Central
Bank for the work you are undertaking.
Thank you for the opportunity to speak this evening.
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1 I would like to thank Paul Reddan, Tara McIndoe-Calder and Stephen Byrne for their contributions to my
remarks.
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2 Quarterly Bulletin Q2 2022, Central Bank of Ireland.
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3 Inflation is projected to moderate to 2.8 per cent in 2023 and 2.1 per cent in 2024.
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4 Lydon, R., 2022. Household characteristics, Irish inflation and the cost of living. Central Bank of Ireland,
Economic Letter, Vol. 2022, No.1.
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5 ECB Monetary Policy Statement, 14 April 2022.
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6 Boyd, Byrne, Keenan and McIndoe-Calder (forthcoming). Pandemic Puzzles: Labour force recovery after a
pandemic. Quarterly Bulletin Signed Article.
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7 Byrne, S. and O'Brien, M.D., 2017. Understanding Irish labour force participation. The Economic and Social
Review, 48(1, Spring), pp.27-60.
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8 Donnery, Sharon. Gender Diversity for Policy Making, a Central Banking Perspective. Remarks delivered at
OMFIF Gender Balance Index 2020 launch (5 March 2020).
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9 Madouros, Vasileios. Diversity and Inclusion: why it matters for the Central Bank. Remarks delivered at
National Diversity & Inclusion Conference (4 September 2019).
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10 Higher Education Authority, State Examinations Commission.
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11 Donnery, Sharon. The importance of diversity in central banks and supervised entities. Remarks delivered at
the Central Bank of Malta 50th Anniversary Conference (4 May 2018).