1. 1
The Relationship between Education and the
Labour Market for young people in Ireland
Name: Stephen Doyle
Student Number: 14495862

2. 2
1: Introduction
"Arbeit macht frei" is a quote at the gates of the infamous Dachau concentration camp. The
line translates simply to “work sets you free”. The quote fuels the idea that through hard work
the prisoners will earn themselves freedom. But of course the truth behind that quote is a blatant
lie. They say that history repeats itself in different forms. Now how true do you think that
quote is in terms of the events in Ireland in 2008? History has repeated itself in terms of the
mass unemployment of young workers in Ireland. Young workers, who have worked hard in
school and in third level education have been left without the freedom to be able to work to
provide for themselves. “Anglos golden circle” of property developers and bankers have
brought the economy to its knees and prevented the young employees to find themselves
employment. Throughout 2008, there was a 5 fold increase in the number of people joining the
dole queue with degrees (CSO, 2009). Over 50% of young employees between the ages of 20-
25 lost their jobs and the numbers of young workers who remained unemployed increased over
the following five years.
This paper will bring to light the effect that education has on the labour market for young
people in Ireland. Through analysis of the unemployment and the labour market for youths
between the ages of 15-19 and 20-24 the paper will discuss the whether there is a rise in
continual unemployment between the 5 years after the recession began and will include factors
which are helping young people re-join the jobs market. The paper will detail the rise and fall
in trends in the different types of education and will show through models which form of
education is best suited to helping the individual find employment. In addition we will look at
government incentives and the work that the state has done to help curve the rising
unemployment rate and also discover the factors that will affect any person thinking about
returning to third level education as a means to place themselves in an optimal position to return
to the labour market. The paper will continue as follows. Section 2 will be a synopsis of the
existing literature and economic theories. Section 3 will contain calculations and data analysis
undertook as part of this paper and section 4 will include a summary and the implications of
the findings.

3. 3
2. Literary Review
2.1 The Labour Market for Young People in Ireland
The implication the 2008 recession were broad and wide however the effect of the recession
on young people in Ireland led to a dramatic deterioration of young workers in the labour
market. This is detailed in a journal article titled “Transitions In and Out of Unemployment
among Young People in the Irish Recession” (Kelly et al, 2014). Focussing initially on the
characteristics of the stats that remained continuously unemployed, there was a substantial fall
of youth aged 15-19 between 2006 and 2011. The paper showed that the reasons for this large
drop in figures is not due to more youth enjoying employment but instead deciding to stay out
of the labour market and remain in education instead (Kelly et al, 2013). The numbers of youths
unemployed aged 20-24 increased over the period showing the lack of opportunity for any
young men to get work. Interestingly the number of people who obtained a third level degree
increased fourfold as people realise that education is essential if they’re to stand out and
become part of the labour force. Figure 1 shows the profile of young people who were
unemployed in 2006 and 2011 according to their labour market status
Figure 1: Constructed with data from the 2006 and 2011 Quarterly National Household Survey
3.7
18.3
12.8 12.6
0
10
20
30
40
50
60
70
80
90
2006 Continually
Unemployeed
2011 Continually
Unemployeed
2006 Into Employment2011 Into Employment
Profile of Unemployed Youth in 2006 and 2011 by
Labour Marker Status
15-19 Year Olds 20-24 Year Olds Degree PLC

4. 4
Furthermore probit models on the determinants of transitioning from unemployed to employed
between 2006 and 2011 in Graph 2, show that throughout the Celtic Tiger era unemployed
youths aged 20 to 24 were more likely to obtain employment compared to people aged 15 to
19, yet the opposite result was the case when the recession hit in 2008 (O’Hagan, 2015). Both
age groups are decreasing however youth in the 20-24 year old category are decreasing with a
steeper slope than the 15-19 year old category meaning that it is less likely that a worker will
be hired from the 20-24 year old category after the 2008 recession. The impact on this is
emphasised in the article “Changing to Education during a Boom” (McGuiness, 2014) which
stated that employers will hire a new worker based on skill based technology. There is a
positive correlation between computer based technologies and increased use of university
educated labour within industries in firms. As we have seen the younger generation can benefit
with extra education during the recession while jobs are scarce and work on educating
themselves and positioning themselves correctly for the employer. An increase in growth in
high skill employment may cause an increase in demand for low skill work (Byrne et al, 2012).
This will lead to a fall in demand for middle class jobs where technical skills will replace that
of human skills.
Figure 2: Authors calculationsbased on Figure 3: Authors calculations based on
Data from OECD Data from the OECD
-0.05
0
0.05
0.1
0.15
0.2
0.25
2006 2011
Probitmodel on the
determinants of the
transition from
unemployed to
employed: Age
15-19 Years Old 20-24 Years Old
-1.1
-0.9
-0.7
-0.5
-0.3
-0.1
0.1
0.3
0.5
2006 2011
Probitmodel on the
determinants of the
transition from
unemploymentto
employed: Education
Third Level Degree
Third Level Non Degree
PLC
Leaving cert

5. 5
Using the probit model from “Transitions In and Out of Unemployment Among Young People
in the Irish Recession” (Kelly et al, 2014) we see that all levels of educational qualification
increased the chances of transitioning into a position of employment in 2006 except that of
Third level non-degree. Two factors are used to explain the lower probability of transitioning
to employment in 2016
a) A large demand for labour within construction and service industries
b) A poor alignment with the information taught in the Third level non-degree and the
needs of the labour market at that time. During this period of time the largest type
of educational course was the Post leaving Cert level qualification (PLC) which
prepared people for work in hospitality, catering or in construction.
However in 2011 the PLC educational course has a low impact on employment transitions in
comparison to the other educational groups. There was been a very large increase in the Third
level degree or higher educational course. In comparison to the 2006 situation where the Third
level Non-Degree had a negative impact on employment transitions, in 2011 Third level Non-
Degree increases the probability of a successful labour market transition (Kelly, 2014). This is
more than likely due to the large fall in the demand for unskilled labour now relative to the
period earlier. This improvement in education can be seen in the change in employments
between 2007 and 2013 in Figure 4 .The decline in youth employment was concentrated in
construction, a sector where the number of jobs collapsed from 60 000 at the end of 2007 to
approximately 5000 in the 3rd quarter of 2012 (Pandiella, 2013). This devastating effect
resulted in a significant change in the demographic of employment in Ireland. This bar chart
emphasis the gradual decrease in people attending PLC courses as the need for workers in
Manufacturing and construction has fallen drastically.
Figure 4: Eurostat, European Union Labour Force Survey (EU-LFS).
0
50
100
150
200
Agriculture Manufacturing Construction Services Education Other
Youth Unemplymentby Industry and Serviceby
Economic Activity
2007 2013

6. 6
This chart emphasis what we have seen in in Figure 1 with the gradual decrease in people
attending PLC courses with the desire for employment in construction or vocational works.
The need for workers in Manufacturing and construction has fallen drastically between 2007
and 2013.
The studies by the Kelly (2015), Pandiella (2013) and Flannery (2009) discovered that the rate
of transitioning to employment for unemployed young people fell hugely between the years
2006 and 2011. The studies showed that the dramatic fall was not due to changes in
composition or characteristics of the unemployed group but instead due to changes externally.
In terms of the period between 2006 and 2011 the external change was the effect the recession
had on the labour market for youths in Ireland.
2.2 Ensuring active labour market and benefit policies better support young
unemployed
When talking about education and employment or perhaps the lack of employment, it is crucial
to look at what can be done to increase the ability for people to find employment. Given the
persistent unemployment rates of among the youth it is vital for intervention in the youth labour
market. Activation policies are predominant to curbing the scarring effect (Pandiella, 2013). In
the short run, given by weak economic growth and low labour demand, this will limit the
decline in unemployment. Indeed, it is incredibly important to ensure that youth remain
connected to the labour market to allow them to return to employment once the recovery begins.
To achieve that aim, it is important to implement efficient labour market programs to target the
specific needs of the younger generation (Pandiella, 2013). Programs such as active labour
market programs ALMPs are of critical importance in times of buoyant employment creation.
Young workers tend to have less contacts and less experience in finding themselves jobs which
places them at a relative disadvantage compared to adults (Bell and Blanchflower, 2015).
Hence the need for employment assistance and support provided by public services can play a
huge role in helping to get young workers back into the labour market.
Ireland has dedicated a huge amount of fiscal resources to labour market policies especially in
terms of international standards (Figure 5). A large amount of this spending has been used for
passive programs and only part of the spending was used on active measures, for example
Community Employment has unfortunately had minimal effect in pursuing its main goal which
was guiding participants back into the labour market. Active measures refer to the likes of
training, employment incentives, encouraging rehabilitation, direct job creation and start-up
incentives while passive measures include monetary support in terms of out-of-work income
maintenance and support and early retirement (Edzes et al, 2015). Regarding tight fiscal and
budgetary constraints, it would have been more productive had the implication of cost-effective
policies occurred, as these policies were found to increase the employability of participants. In
Ireland, those that attended training were found to be less likely to be unemployed however
this result depended on the different type and duration of the training received (McGuinness,
2011).

7. 7
Figure 5: OECD/Eurostat Labour Market Programmes database
Figure 6: OECD/EurostatLabourMarketProgrammesdatabase
These youth passive schemes are vitally important to prevent risk of poverty or more
importantly social exclusion from society. Passive measures include the likes of out of work
income maintenance, jobs seekers benefits (JSB) and job seekers allowances (JSA). JSBs
provide the individual with a weekly income which has gathered through social security
contributions. They are usually paid for 9 or 6 months depending on the amount of social
security contributions paid. For those who don’t qualify for JSB or have used it up are entitled
to apply for JSA which is means tested. Passive measures are important to avert poverty risk
however as the economy strengthens and job prospects improve, the emphasis should shift
away from passive measures to active measurers which will have more of an effect on the
labour market.
0
0.2
0.4
0.6
0.8
1
1.2
%
Money Spent on Active Measures per
Country as a percentage of GDP
2007 2010
0
0.5
1
1.5
2
2.5
3
%
Money Spent on PassiveMeasures per
Country as a Percentageof GDP
2007 2010

8. 8
In 2012 the Pathway to Work (PTW) scheme was introduced to help initiate engagement
between the unemployed and potential job opportunities and to strengthen links with potential
employers (Pandiella, 2013). It was essentially a one-stop-shop where “job placement and
benefit administration are integrated in a single delivery unit” (Pandiella, 2013). Pathway to
Works main aims were to:
A) Ensure more regular and reoccurring engagement with the unemployed
B) Encourage and incentivise the take up of opportunities
C) Build up relations with employers by using incentives.
D) Ensure reform of institutions to deliver a higher standard if service to the
unemployed.
PTW greatly improved the delivery of active labour market participation and is currently in
line with recommended OECD levels (OECD, 2011). Yet the pace in which the development
is growing at is slow.
2.3 A Model of Higher Education Participation
As we have seen the relationship between education and the labour market for young people in
Ireland takes into consideration many variables. One such factor is the effect that level of
education will have on the jobs market and the labour market. Given that a large amount of
young people with PLC courses remained unemployed in 2011 compared to the huge increase
in young people studying degrees who obtained a job, it is easy to see that higher education is
becoming more valued. Most students don’t just do a PLC course or a degree for the sake of
the information learned. Many hope that the increase in education will increase their chances
of higher wage. However given the uncertainty of the labour market and the economic
circumstances surrounding the recent years, people tend to be unsure whether or not investing
in further education is necessary especially given that employment in services and potential
careers in education have more than halved since 2007 is worth it as seen in Figure 4 (Harvey,
2000). Increasingly socioeconomic factors have played a large part in whether a person
continues on to third level education and thus has a higher chance of employment (Flannery et
al, 2009). This formula will adopt a life cycle model of the education participation decisions
and utilise existing and relevant work to rationalise the theoretical framework.
This type of higher education model was first outlined by the work of Mincer (1964) and Ben
Porath (1967) which showed the link between a person’s life cycle of income and an
individual’s investment in human capital. Investment in human capital takes into account
expected returns and costs of that investment (Flannery, 2009). In terms of deciding whether
or not to take on additional education, the benefits of doing so results in returns of extra lifetime
income. However the costs that are involved include the cost of the education, books,
accommodation and also the forgone earnings from not working and choosing to go back into
education

9. 9
In the model that we are using we must start off assuming that each person has an infinite
planning horizon that starts at age (t=0). They increase utility with consumption c(t) in period
t which will depend largely on whether they are currently in education or else out of education.
Life utility, depending on education S is given by the formula below.
Furthermore we can also assume that a person will discount future utility at a discount rate, p.
The term Φ(t) shows the disutility of being in education compared to other choices possible i.e.
working. This function is then subject to a budget constraint.
Where y(S,t) stands for earnings at age t of a person who has finished S years of education
while T(t) stands for the cost of tuition t. F(t) represents any financial aid that the student may
receive and A(t) include the costs of transport, accommodation and living costs. These remain
a huge factor when deciding whether or not to participate in higher levels of education and
whether the value of this education is worthwhile in aiding an individual obtain employment.
The marginal benefits of extra education can be seen below
This shows the expected extra lifetime earnings due to extra time spent in education while the
following equation represents the cost of extra education MC(S)
Together these terms represent cost of education fees, forgone earnings, costs in terms of
transport, accommodation and living minus any financial aid while in education. The last
equation demonstrates the euro equivalent of the schooling in period S. Hence the optimal
education decision will occur when MC(S)=MB(S) (Borjas, 2016). This implies is that if the
cost of education is large and the marginal benefit is low then not many people will attend extra
education and the opposite for when the cost of education is low and benefit is high.
(1)
(2)
(3)
(4)

10. 10
3. Data Analysis
3.1 Dataset
The data used in paper comes from two sources. From the “Health and Retirement Study” HRS)
and also from “Ireland OECD Profile”. There is significant data available within the HRS data
set regarding number of years of education, level of education but also whether or not each
individual person has obtained employment. Furthermore the data within “Irelands OECD
Profile” represents data on Irish employment rates for different years of age, which can be
compared against the average unemployment rate in the OECD. For the purpose of this paper,
data was collected from Ireland but also used the OECD average rates as a comparison in the
hopes of providing an accurate representation of the different levels of employment in Ireland
and also the results that further education can have.
The time period for this analysis is between 2005 and 2012 as this will give a period of time
which encapsulates the peak of the Celtic Tiger, the crash of the economy and the recession
that followed.
3.2 Method and Calculations
As part of the data analysis, this paper will construct three structured graphs which will help to
explain the relationship between education and the labour market for young people in Ireland.
I will take a sample of 100 people randomly from the “Health and Retirement Study” and use
this sample within all of my calculations and graphs. Each part of the data analysis will deal
with a new factor effecting the relationship between education and the labour market. Firstly
the paper will look at the effect different education courses will have income. Of course we
have already looked at the effect different educational courses will have on employment in
(Figure 1) however the major difference here is that the sample which has been chosen for this
graph will have already obtained employment and instead of checking their employability with
different courses we will instead be looking at the different incomes associated with different
levels of education.
Secondly we will look at how the number of years of education effects the level of income and
see whether there is a positive or negative correlation between income and years of education
within the sample of 100 people. Thirdly and lastly the paper will see how the recession that
began in 2008 has effected the labour market using data from “Irelands OECD Profile”.
3.3 The relationship between education and the labour market in Ireland
Using data from the “Health and Retirement study” this information is able to show the key
relationship between education and the effect on the labour market. To show this, 100 people
were sampled and those that obtained a job were included in the calculations. Of those 100
people sampled only 26 managed to get a job. Taking into consideration those that managed to
get employment, there is a positive correlation between higher levels of education and income.

11. 11
Those that completed college and above earned significantly more than those that completed
LT High school. Though the correlation is positive, it is weakly positive, 0.1649. This means
that for every extra dollar spent on education, future income only rises by 0.1649 dollars. As
we can see below, those that spend extra dollars on education will see a return in higher income.
The correlation between education and the labour market does not imply causation as not all
educated people have found jobs in the labour market.
Figure 7: Heath and research Study, 2004
This graph shows us that the majority of students from the sample who have a GED level of
education and have a job will earn below 10,000 dollars. However when you look at the data
from the sample of people who have obtained a college degree and above, the incomes of these
people rise significantly. As this includes all levels of education above college i.e. masters and
PHD programs there is no surprise that these people are able to earn so much more as we can
see that the correlation between education and income is positive.
3.4 The Relationship between Income and Time spend in Education
Using data from the “Health and Retirement Study” it is possible to show evidence that a
positive correlation exists between income and the time spent in education. Again given that
from the sample of 100 people only 26 people managed to secure a job, this is the number of
people that will be used in the example. Interestingly though if you were to compare the average
years of education of those that attained a job you would find that the average age was 13.88 compared
to those who did not find employment had only 11.11 years of education on average. However when
looking at the relationship between income and time spent in education the results can be found in
(Figure 8).
y = 15016x - 17508
R² = 0.1649
-50000
0
50000
100000
150000
200000
250000
0 1 2 3 4 5 6
IncomeformJob
Types of education that resulted in a Job
Relationship between education and income,
given the individual is employeed
Key
1. LT High school
2. GED
3. High school Grad
4. Some College
5. College and Above

12. 12
Figure 8: Health and Research Survey, 2004
The results show a positive correlation between years of education and income. Surprisingly
there was no people in employment with under 10 years of employment. The regression line is
derived from the regression equation which gives us Y= -77394 + 8333.5x
3.5 The effect the Change in the Labour Market has had on Employment
and Education
Using data from Irelands OECD profile the paper shows the following trend of unemployment
as the country enters the recession. More significantly is the huge increase in size of the rates
of young workers between the ages of 15-19 not in education or employment increases by
100%.
Figure 9: Data from Ireland OECD Profile 2013
y = 8333.5x - 77394
R² = 0.1387
0
50000
100000
150000
200000
250000
0 2 4 6 8 10 12 14 16 18
Income
Years in Education
Relationship between Years of Education and
Income
0
5
10
15
20
25
30
2006 2007 2008 2009 2010 2011 2012
%notinEducationorEmployment
The effect the Recession has had on the Labour
Market for the Youth
Youths 15-19 Not in Education or Employment
Youths 20-24 Not in education or Employment
Unemplyment Rate

13. 13
All members of the labour force were effected hugely as seen by the constantly increasing
unemployment rate as a whole for the economy but more so individuals within the 20-24 age bracket
asthe average percentage of young people unemployed in this bracketwas10% higher than the national
unemployment rate in 2010.
4. Conclusion
The purpose of this paper was examine the relationship between education and the labour
market for youths in Ireland. As we have seen through the literary review and data analysis that
there exists a positive correlation between education and employment in the labour market.
This positive correlation is evident in all the diagrams and graphs drawn. Though positive, the
correlation tends to be weakly positive. External factors have affected the relationship greatly.
The paper shows that the rise and fall of what the employment sector needs greatly effects the
level of education and also the types of employment people will become part of. This is evident
as the number of people who obtain a PLC degree and are employed drops significantly
between 2006 and 2011 compared to those who had a degree. The higher level of education
stood to these people when job opportunity was low, leading to a fourfold increase in young
people with degrees. Furthermore the paper examined the need for external intervention as a
way to slow down increasing unemployment rates that were effecting a large amount of society.
Government increased the amount of funding for active and passive measures to help the
unemployed which allowed for greater projects to be implemented to help re-educate and show
people how to get back into the jobs market. This paper has largely incorporated existing
theories and data that has been used to identify the importance of education. The significance
of education is cemented in this paper as it has shown that without adequate levels of education,
the likelihood of employment is very slim. The importance of education and the factors that
must be thought of if one is to proceed with education is explained through the works of Mincer
and Porath which showed the link between a person’s life cycle of income and an individual’s
investment in human capital.
The analysis in this paper aimed to interpret the relationship between education and the labour
market for young people. Fortunately the vast amount of information greatly helped to find
exact information regarding data and theories. While work may have already be done on this
topic it is good to be able to use the data and research other parts on this relationship that might
not have been analysed before. The examining of the relationship and of the variables
associated with it allow to highlight the significance the role of education can have on the
labour market. Conclusively, it can be said that although unemployment has risen, one positive
outlook that can be taken is that the young in Ireland are now more than ever more employable
as within the last 10 years the standard of education in the work force that Ireland has, has
increased hugely, benefiting the country but also the people themselves if they ever want to
look for work abroad.

14. 14
5. References
Bell, David, and Blanchflower, David. 'Youth Unemployment in Greece: Measuring
the Challenge', IZA Journal of European Labor Studies, vol. 4/no. 1, (2015), pp. 1-25.
Borjas, George J. Labor Economics. 4th ed. New York, McGraw-Hill, 2016.
Byrne, Marann, Aamir Ali Chughtai, Barbara Flood, et al. 'Job Satisfaction among
Accounting and Finance Academics: Empirical Evidence from Irish Higher Education
Institutions', Journal of Higher Education Policy and Management, vol. 34/no. 2,
(2012), pp. 153-167.
Central Statistics Office. Quarterly National Household Survey,
http://www.cso.ie/en/media/csoie/releasespublications/documents/labourmarket/2011/
qnhs_q12011.pdf April 2016.
Edzes, Arjen, Viktor Venhorst, Jouke van Dijk, et al. 'Labour Market Performance and
School Careers of Low Educated Graduates', Letters in Spatial and Resource Sciences,
vol. 8/no. 3, (2015), pp. 267-289.
Flannery, Darragh, and O'Donoghue, Cathal. 'The Determinants of Higher Education
Participation in Ireland: A Micro Analysis', Economic and Social Review, vol. 40/no. 1,
(2009), pp. 73-107.
Harvey, Lee. 'New Realities: The Relationship between Higher Education and
Employment', Tertiary Education and Management, vol. 6/no. 1, (2000), pp. 3-17.
Kelly, Elish, Mcguinness, Seamus and O'connell, Philip. 'Transitions in and Out of
Unemployment among Young People in the Irish Recession', Comparative Economic
Studies, vol. 56/no. 4, (2014), pp. 616-634.
Mcguinness, Seamus, Frances Mcginnity, and Philip J. O'Connell. 'Changing Returns
to Education during a Boom? The Case of Ireland', Labour, vol. 23/no. 1, (2009), pp.
197-221.
O'Hagan, J. W., and Carol Newman. The Economy of Ireland: National and Sectoral
Policy Issues. Dublin: Gill & Macmillan, 2014.
Pandiella, Alberto González. 'Getting Irish Youth on the Job Track', OECD Economic
Department Working Papers, no. 1101, (2013), pp. 2-34.