International economic integration is a defining characteristic of the Irish economy. Globalisation is perceived as both an opportunity and a threat (if Ireland is uncompetitive, its domestic industries will decline in the face of cheaper imports of goods and services). Globalisation impacts the labour market through increased completive pressures from abroad and migration.

International trade in goods and services has contributed massively to higher standards of living. The mechanism by which this is achieved is specialisation. Domestic industries now compete against foreign firms at home and abroad. Uncompetitive firms will be eliminated by more efficient rivals, which mean higher unemployment in uncompetitive countries.

For a small, open economy like Ireland, the solution to unemployment caused by competition from abroad is to capture large economies of scale. This can be achieved by focusing on becoming the world leader and largest producer in a small, specialized segment of an established industry. For instance, supplying specialized inputs for the car manufacturing industry or parts of a computer processor.

Another cause of unemployment is immigration. The impact of immigration on the labour market critically depends on the skills of migrants, the skills of existing workers and on the extent to which migrants have skills that are substitutes or complements to those of existing workers. Generally migrants whose skills are substitutes will cause higher unemployment through lower wages while complementary skills have no adverse impact on employment.

However, while immigration can result in increased unemployment in the short run, immigrants expand consumer demand for goods and services. In the medium to long run this results in greater demand for labour and thus increased wages and employment in the economy. This alleviates the initial increase in