Tom McDonnell: TASC made a short submission last week to the Labour Court review of the JLC wage agreement mechanisms. The submission is available here.
The Joint Committee on Jobs, Enterprise and Innovation published a report in February on actions to address youth and long-term unemployment. It can be found here. One of the recommendations (Number 26) states that there should be an investigation into the effects of the minimum wage (both positive and negative) on the jobs market. This is a sensible recommendation. The independent Low Pay Commission (LPC) in the United Kingdom does this every year. What does the evidence suggest?;
The LPC's 2012 Annual Report is here and their discussion of the minimum wage's impact on the UK's labour market begins on page 48 of the pdf. They state that: The general consensus...is that the NMW (i.e, the national minimum wage) has not significantly affected employment .
Both the theoretical and empirical literature are ambiguous concerning the impacts on employment. While the standard competitive model suggests there should be a negative effect on the jobs market, institutional models and dynamic monopsony models both suggest that the effect is actually much less clear cut. Increased aggregate demand and reduced search costs are just two reasons why the effect on net employment might be minimal or non-existent. Recent empirical work suggests minimum wage have little or no overall effect. See for example this study by Arindajit Dube, William Lester and Michael Reich.
John Schmitt asks why the minimum wage appears to have 'no discernible effect' on the minimum wage here while Barry Hirsch, Bruce Kaufman and Tatyana Zelenska try and explain the lack of effect on employment here through the framework of differing 'channels of adjustment'.
While innovative solutions to the jobs crisis are needed, reduced levels for wage floors are unlikely to be helpful in reducing unemployment. The major effects would likely be to increase financial hardship and vulnerability for low wage workers, and increasing income inequality, without any meaningful impact on overall employment.
Showing posts with label employment. Show all posts
Showing posts with label employment. Show all posts
Wednesday, 6 March 2013
Wednesday, 13 June 2012
The Costs of Working in Ireland
Nat O'Connor: The ESRI withdrew a working paper today. The Irish Times reported that this was "unprecedented". However, another ESRI report (on waste incineration) was being "re-examined" by the ESRI last year, so it is not completely unheard of.
Working in a think-tank that also publishes discussion papers that are the author's sole responsibility, I have a certain sympathy for the ESRI's position. The whole point about working papers - and the Cost of Working piece was just that, not a 'report' as The Irish Times claims - is that they are open for discussion and debate, and there is an opportunity for new information and new analysis to influence the author's thinking before a final version is produced. Taken to a logical extreme, it is always possible that working papers in the social sciences are simply wrong. The margin of error in statistical analysis always allows for a few lemons. But this is not always obvious and we need the publication of more, and more diverse, analysis in Ireland, not less.
The pity about this brief storm is that the withdrawal of the paper will focus more attention on its uncertain conclusions than if it was quietly ignored. It's worth noting a couple of things about the paper. (I found a copy here: http://www.rte.ie/news/2012/0612/esri_report.pdf).
First of all, the data is from the 2004/05 Household Budget Survey, at a time when we had practically full employment in Ireland. While the 'incentives' might seem to have made moving from welfare to work unattractive, the fact was that practically everyone was actually working and many people left welfare to take up employment. This somewhat deflates the central argument of the paper.
The paper rightly points out the fact that childcare costs are extremely high and that they - and other costs - are a barrier to people entering work. There is no doubt that there is a weight of evidence that people, especially women, are put off from entering the labour market because of the costs of childcare. People parenting alone are particularly affected by this.
But the paper does not examine other costs, and factors that offset these costs. For example, housing costs are a major factor. People who gain employment will lose Rent Supplement, whereas people living in local authority social housing can maintain their lower-than-average 'differential rent' when they gain employment. (Differential rent is not a bad thing, as cheaper rent makes it possible for some people to take lower paid employment). In other words, there are lots of major variables not examined in the paper that change the incentives about working.
Moreover, are economists better placed than psychologists to explain why people go to work? During the boom period, some people went to work for marginal benefit, when costs like childcare are factored in. However, people work in order to maintain social networks, for a sense of personal independence and for lots of other reasons. Looking only at a set of short-term cash 'incentives' won't tell the whole story.
Finally, there are other important factors to be examined. NERI point out that the ratio of people unemployed to job vacancies in Ireland is the second worse in the EU. In other words, there are far more people looking for work than there are jobs, and no amount of changing incentives is going to improve that. The real focus should be on boosting demand in the economy to generate more employment opportunities.
Working in a think-tank that also publishes discussion papers that are the author's sole responsibility, I have a certain sympathy for the ESRI's position. The whole point about working papers - and the Cost of Working piece was just that, not a 'report' as The Irish Times claims - is that they are open for discussion and debate, and there is an opportunity for new information and new analysis to influence the author's thinking before a final version is produced. Taken to a logical extreme, it is always possible that working papers in the social sciences are simply wrong. The margin of error in statistical analysis always allows for a few lemons. But this is not always obvious and we need the publication of more, and more diverse, analysis in Ireland, not less.
The pity about this brief storm is that the withdrawal of the paper will focus more attention on its uncertain conclusions than if it was quietly ignored. It's worth noting a couple of things about the paper. (I found a copy here: http://www.rte.ie/news/2012/0612/esri_report.pdf).
First of all, the data is from the 2004/05 Household Budget Survey, at a time when we had practically full employment in Ireland. While the 'incentives' might seem to have made moving from welfare to work unattractive, the fact was that practically everyone was actually working and many people left welfare to take up employment. This somewhat deflates the central argument of the paper.
The paper rightly points out the fact that childcare costs are extremely high and that they - and other costs - are a barrier to people entering work. There is no doubt that there is a weight of evidence that people, especially women, are put off from entering the labour market because of the costs of childcare. People parenting alone are particularly affected by this.
But the paper does not examine other costs, and factors that offset these costs. For example, housing costs are a major factor. People who gain employment will lose Rent Supplement, whereas people living in local authority social housing can maintain their lower-than-average 'differential rent' when they gain employment. (Differential rent is not a bad thing, as cheaper rent makes it possible for some people to take lower paid employment). In other words, there are lots of major variables not examined in the paper that change the incentives about working.
Moreover, are economists better placed than psychologists to explain why people go to work? During the boom period, some people went to work for marginal benefit, when costs like childcare are factored in. However, people work in order to maintain social networks, for a sense of personal independence and for lots of other reasons. Looking only at a set of short-term cash 'incentives' won't tell the whole story.
Finally, there are other important factors to be examined. NERI point out that the ratio of people unemployed to job vacancies in Ireland is the second worse in the EU. In other words, there are far more people looking for work than there are jobs, and no amount of changing incentives is going to improve that. The real focus should be on boosting demand in the economy to generate more employment opportunities.
Monday, 12 December 2011
Employment is down
Tom McDonnell: It just keeps getting worse. Long-term unemployment now accounts for 56.3 per cent of total unemployment while the seasonally adjusted unemployment rate now stands at 14.4 per cent, compared with the previous figure of 14.2 per cent.
3rd quarter QNHS figures are reported here while the figures can be found here. Headline figures are here
The annual change in employment is -46,000 while the annual change in full time employment is -53,100
3rd quarter QNHS figures are reported here while the figures can be found here. Headline figures are here
The annual change in employment is -46,000 while the annual change in full time employment is -53,100
Wednesday, 1 June 2011
Why are businesses going out of business?
Michael Taft: To listen to employers’ groups and Minister Bruton, you’d think that businesses are going out of business because the lowest paid workers in the economy are too highly paid. This argument has to ignore the EU Commission’s data showing that labour costs in the Irish hospitality and wholesale/retail sector are below the EU-15 average. This also ignores the fact that labour costs in these two sectors have already fallen by between 4 and 5 percent; if cutting labour costs will result in job retention and business survival why hasn’t it already?
So, if it’s not labour costs or high wages in the low-paid sectors, what is the problem? The answer is rather straight-forward: fewer customers spending less money.
We fail to appreciate the scale of the economic collapse in Ireland in comparison with other Eurozone countries: GDP, investment, etc. In particular, we fail to appreciate the collapse in consumer spending. In the three year period of our recession 2007-2010, Irish consumer spending has fallen in real terms by -10.2 percent. In the Eurozone, consumer spending has actually increased marginally by 0.1 percent.
In 2010, we spent €12 billion less than in 2007 – a fall in nominal terms of -13 percent. That is one heck of a hit for business reliant upon domestic demand to absorb – and many of them couldn’t.
The collapse in Irish consumer spending in unprecedented among the original Eurozone countries; there is nothing to compare to our experience – though Greece, a latecomer to the recession, looks set to see consumer spending fall by -13 percent in real terms up to 2011
The next couple of years aren’t going to provide much relief for domestic businesses. Up to 2012, the EU projects Irish consumer spending to fall a further -3 percent. The Eurozone, on the other hand, is expected to grow by 2 percent. Europe goes forward; Ireland lags further behind.
The demands for more pay cuts and Minister Bruton’s proposals are likely to exacerbate this situation. With more taxes coming down the line (the household/utilities charge) combined with rising interest rates and inflation are going to squeeze consumer spending even further. And then there is the precautionary saving arising out of concerns over pension funds, children’s education costs, nursing home costs and rising health insurance premium – a lot of social uncertainty compounding economic uncertainty.
Put simply, businesses are going out of business because there are fewer customers spending less money – whether that’s due to unemployment, emigration, falling disposable income (through tax increases), savings due to fear, etc. If you don’t fix that problem, that problem will persist.
But let’s not be seduced by the argument that if only we could ‘create’ certainty, then all those household savings could be unleashed into the market and growth would be restored. Consumer spending falls are as much a result of the economic collapse as a cause.
Sustainable recovery will occur when we drive up investment (whose collapse puts the fall in consumer spending in the shade). This will drive employment and productivity. More importantly, this will drive sustainable wage-led consumption, rather than credit-led consumption.
We need a different mind-set to the crisis than the one we’re being treated to. In short, when you deflate the economy and wages, you will crash consumption which will feed into further collapse.
In this context, if you believe cutting wages is a means to increase employment is not an exercise in economics. It is an exercise in alchemy.
So, if it’s not labour costs or high wages in the low-paid sectors, what is the problem? The answer is rather straight-forward: fewer customers spending less money.
We fail to appreciate the scale of the economic collapse in Ireland in comparison with other Eurozone countries: GDP, investment, etc. In particular, we fail to appreciate the collapse in consumer spending. In the three year period of our recession 2007-2010, Irish consumer spending has fallen in real terms by -10.2 percent. In the Eurozone, consumer spending has actually increased marginally by 0.1 percent.
In 2010, we spent €12 billion less than in 2007 – a fall in nominal terms of -13 percent. That is one heck of a hit for business reliant upon domestic demand to absorb – and many of them couldn’t.
The collapse in Irish consumer spending in unprecedented among the original Eurozone countries; there is nothing to compare to our experience – though Greece, a latecomer to the recession, looks set to see consumer spending fall by -13 percent in real terms up to 2011
The next couple of years aren’t going to provide much relief for domestic businesses. Up to 2012, the EU projects Irish consumer spending to fall a further -3 percent. The Eurozone, on the other hand, is expected to grow by 2 percent. Europe goes forward; Ireland lags further behind.
The demands for more pay cuts and Minister Bruton’s proposals are likely to exacerbate this situation. With more taxes coming down the line (the household/utilities charge) combined with rising interest rates and inflation are going to squeeze consumer spending even further. And then there is the precautionary saving arising out of concerns over pension funds, children’s education costs, nursing home costs and rising health insurance premium – a lot of social uncertainty compounding economic uncertainty.
Put simply, businesses are going out of business because there are fewer customers spending less money – whether that’s due to unemployment, emigration, falling disposable income (through tax increases), savings due to fear, etc. If you don’t fix that problem, that problem will persist.
But let’s not be seduced by the argument that if only we could ‘create’ certainty, then all those household savings could be unleashed into the market and growth would be restored. Consumer spending falls are as much a result of the economic collapse as a cause.
Sustainable recovery will occur when we drive up investment (whose collapse puts the fall in consumer spending in the shade). This will drive employment and productivity. More importantly, this will drive sustainable wage-led consumption, rather than credit-led consumption.
We need a different mind-set to the crisis than the one we’re being treated to. In short, when you deflate the economy and wages, you will crash consumption which will feed into further collapse.
In this context, if you believe cutting wages is a means to increase employment is not an exercise in economics. It is an exercise in alchemy.
Tuesday, 30 June 2009
Class and Employment Decline
Sean O Riain: It is worth taking a closer look at the Quarterly National Household Survey results from last week. The difference between the public and private sectors has attracted some comment but there is much more going on here. In particular, the major trend that stands out is the disastrous collapse in working class employment with growing differences between the position of those with third level education and those without. The need for serious commitments in enterprise and employment policy, education and training policy, and housing/ mortgage support is clear.
The table here gives the full results for employment changes by sector, rather than the aggregated version in Colm McCarthy’s post at irisheconomy.ie (full details from CSO are in the report and tables).
What do we see?
First, almost as an aside at this stage, a useful reminder of the progress of the crisis. Long-standing problems in manufacturing, the bubble bursts in construction and then collapsing demand. It is worth remembering that it was lax regulation, financialisation of the economy, a construction bubble and subsequent collapsing demand that generated this crisis.
Second, some interesting findings within the private sector. Information and communication increased over the last quarter and over the past year transportation/logistics, information and communication, and finance etc remained stable. The collapse is first in industry/ construction, then in hotels and retail, and most recently in services to firms (prof/tech and admin/ support services – which includes temporary employment agencies).
While we can expect retail and producer services to recover if and when economic activity is restored, we can’t expect construction and industry to return at the levels they were at previously. Our ‘informational’ sectors show some degree of resilience and will loom larger than ever in any economic recovery.
How does this translate into labour force change? While employment for those with third level education has remained stable over the past year, the collapse for all others has been in the range of 10 to 20%. Unemployment has increased for those with third level education but employment has largely held up.
Click here (and scroll down) for Table 2, showing the numbers employed by level of education.
This is not just a matter of those with higher education competing for jobs they would not have previously been interested in (although there is some of that here). It is also due to the pattern of occupational change (Table 2). Professional employment has begun to drop sharply in the first quarter of this year but the declines are still smaller than in craft, sales, operative and other (generally relatively low-skilled) occupations. The drop in managerial employment is most likely largely due to small businesses going to the wall (these businesses partly accounting for Ireland’s high comparative proportion of such managerial employment), although it may be that larger businesses are laying off large numbers of managers.
Click here (and scroll down) for Table 3, showing employment by occupation.
The class divide in the impact of the recession stands out. While the pain is being felt all around, the sectoral, occupational and educational data points to both the particularly disastrous short-term and long-term effects of the recession on those in manual and service occupations. Given what appear to be high rates of intra-class marriage in Ireland (Brendan Halpin and have an interesting article on this using data from the mid-90s), the worst effects of the recession are likely concentrated in particular classes and households. If we add in the heavy impact of recent unemployment in the 25-34 and 35-44 age group then the implications for housing and household solvency are very serious, as noted on this site previously.
The effects of the recession are tied up with structural changes in the economy. Any recovery is likely to happen in different sectors than in those currently facing the greatest decline – although construction and industry face the greatest decline, it is informational and service sectors that will be the basis of future growth. So we need policies that will tackle both the recession’s impacts and the need for structural change. These will involve at a minimum a serious enterprise and employment policy to promote sectoral recovery and educational and training policy to invest in the skills and knowledge of those worst affected by the recession and put them in a position to benefit from the recovery.
The table here gives the full results for employment changes by sector, rather than the aggregated version in Colm McCarthy’s post at irisheconomy.ie (full details from CSO are in the report and tables).
What do we see?
First, almost as an aside at this stage, a useful reminder of the progress of the crisis. Long-standing problems in manufacturing, the bubble bursts in construction and then collapsing demand. It is worth remembering that it was lax regulation, financialisation of the economy, a construction bubble and subsequent collapsing demand that generated this crisis.
Second, some interesting findings within the private sector. Information and communication increased over the last quarter and over the past year transportation/logistics, information and communication, and finance etc remained stable. The collapse is first in industry/ construction, then in hotels and retail, and most recently in services to firms (prof/tech and admin/ support services – which includes temporary employment agencies).
While we can expect retail and producer services to recover if and when economic activity is restored, we can’t expect construction and industry to return at the levels they were at previously. Our ‘informational’ sectors show some degree of resilience and will loom larger than ever in any economic recovery.
How does this translate into labour force change? While employment for those with third level education has remained stable over the past year, the collapse for all others has been in the range of 10 to 20%. Unemployment has increased for those with third level education but employment has largely held up.
Click here (and scroll down) for Table 2, showing the numbers employed by level of education.
This is not just a matter of those with higher education competing for jobs they would not have previously been interested in (although there is some of that here). It is also due to the pattern of occupational change (Table 2). Professional employment has begun to drop sharply in the first quarter of this year but the declines are still smaller than in craft, sales, operative and other (generally relatively low-skilled) occupations. The drop in managerial employment is most likely largely due to small businesses going to the wall (these businesses partly accounting for Ireland’s high comparative proportion of such managerial employment), although it may be that larger businesses are laying off large numbers of managers.
The class divide in the impact of the recession stands out. While the pain is being felt all around, the sectoral, occupational and educational data points to both the particularly disastrous short-term and long-term effects of the recession on those in manual and service occupations. Given what appear to be high rates of intra-class marriage in Ireland (Brendan Halpin and have an interesting article on this using data from the mid-90s), the worst effects of the recession are likely concentrated in particular classes and households. If we add in the heavy impact of recent unemployment in the 25-34 and 35-44 age group then the implications for housing and household solvency are very serious, as noted on this site previously.
The effects of the recession are tied up with structural changes in the economy. Any recovery is likely to happen in different sectors than in those currently facing the greatest decline – although construction and industry face the greatest decline, it is informational and service sectors that will be the basis of future growth. So we need policies that will tackle both the recession’s impacts and the need for structural change. These will involve at a minimum a serious enterprise and employment policy to promote sectoral recovery and educational and training policy to invest in the skills and knowledge of those worst affected by the recession and put them in a position to benefit from the recovery.
Tuesday, 5 May 2009
The Ryanair Model of Development?
James Wickham: Ryanair is an Irish success story. Ryanair’s high profile CEO, Michael O’Leary, is one of the country’s home grown billionaires. And Ryanair’s success can be taken as a metaphor for one unnoticed feature of the Celtic Tiger: the extent to which it succeeded by ‘externalising’ problems.
After all, part of the Ryanair experience is not only that you reach more places more cheaply than you ever thought possible, you are also asked to pay for things for which you never thought airlines could charge. Ryanair externalises costs onto its passengers, but also has expertise in externalising its other costs. The environmental costs of air travel are now well known, and Ryanair specialises in short-haul travel, which has the highest environmental impact. While campaigning against subsidies for state airlines, Ryanair has benefited massively from regional subsidies to local airports. Ryanair even ensures that its staff contribute to their own training costs.
The most obvious example of this externalisation process is the environment. What is remarkable about the Irish boom is how old fashioned it was. Whereas for years it has been clear that economic growth can come in more or less energy intensive forms, we accepted the old equation that economic growth equals environmental damage. In particular the boom led to massive urban sprawl - which in turn ensured high levels of private car usage with all the consequent environmental impacts. Dublin’s sprawl was highlighted as an example of bad planning by the EU’s Environmental Protection Agency. Importantly, this was a political choice. Instead of an effective land use planning policy, we had a Ryanair policy – leave the mess for someone else to clear up.
Although it’s probably politically incorrect to say so, immigration policy is another example of externalisation. Despite the massive increase in employment during the boom, Ireland never achieved the levels of employment normal in countries such as Denmark. For example, in 2006 the overall employment rate in Ireland was 68.6%; in Germany it was not much lower at 67.5%, but in Denmark it was 77.4%. Ensuring that the unemployed, the very unskilled and many women could take up jobs would have required a proper ‘activation’ policy with counselling and training, it would have required a proper childcare policy. How much easier just to import labour!
And for all the propaganda about ‘our wonderful education system’, much of the need for skilled labour also came from a failure to motivate, train and educate people in Ireland. Thus whereas domestic technical education was originally expanded in order to facilitate high technology industry and services, Ian Bruff and I have shown how the Irish software sector rapidly became dependent on the import of qualified labour from around the world (‘Skill Shortages are not what they seem’, New Technology Work & Employment vol 23, pp. 30-43).
Clearly a small labour market such as Ireland’s will always need to import some specialist labour, just as those with specialist qualifications will always be more likely to emigrate. However, to some extent immigration policy was a substitute for an effective educational policy, including the weakness of any formal vocational education system. In this sense the educational costs of Irish growth were also externalised.
And I won’t even mention the idea of economic development by competing in terms of ‘light touch regulation’...
After all, part of the Ryanair experience is not only that you reach more places more cheaply than you ever thought possible, you are also asked to pay for things for which you never thought airlines could charge. Ryanair externalises costs onto its passengers, but also has expertise in externalising its other costs. The environmental costs of air travel are now well known, and Ryanair specialises in short-haul travel, which has the highest environmental impact. While campaigning against subsidies for state airlines, Ryanair has benefited massively from regional subsidies to local airports. Ryanair even ensures that its staff contribute to their own training costs.
The most obvious example of this externalisation process is the environment. What is remarkable about the Irish boom is how old fashioned it was. Whereas for years it has been clear that economic growth can come in more or less energy intensive forms, we accepted the old equation that economic growth equals environmental damage. In particular the boom led to massive urban sprawl - which in turn ensured high levels of private car usage with all the consequent environmental impacts. Dublin’s sprawl was highlighted as an example of bad planning by the EU’s Environmental Protection Agency. Importantly, this was a political choice. Instead of an effective land use planning policy, we had a Ryanair policy – leave the mess for someone else to clear up.
Although it’s probably politically incorrect to say so, immigration policy is another example of externalisation. Despite the massive increase in employment during the boom, Ireland never achieved the levels of employment normal in countries such as Denmark. For example, in 2006 the overall employment rate in Ireland was 68.6%; in Germany it was not much lower at 67.5%, but in Denmark it was 77.4%. Ensuring that the unemployed, the very unskilled and many women could take up jobs would have required a proper ‘activation’ policy with counselling and training, it would have required a proper childcare policy. How much easier just to import labour!
And for all the propaganda about ‘our wonderful education system’, much of the need for skilled labour also came from a failure to motivate, train and educate people in Ireland. Thus whereas domestic technical education was originally expanded in order to facilitate high technology industry and services, Ian Bruff and I have shown how the Irish software sector rapidly became dependent on the import of qualified labour from around the world (‘Skill Shortages are not what they seem’, New Technology Work & Employment vol 23, pp. 30-43).
Clearly a small labour market such as Ireland’s will always need to import some specialist labour, just as those with specialist qualifications will always be more likely to emigrate. However, to some extent immigration policy was a substitute for an effective educational policy, including the weakness of any formal vocational education system. In this sense the educational costs of Irish growth were also externalised.
And I won’t even mention the idea of economic development by competing in terms of ‘light touch regulation’...
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