Michael O'Sullivan (author of Ireland and the Global Question) has written a lucid article on what's required for job creation in today's Irish Times.
While Ben Bernanke, head of the Federal Reserve, voiced “grave concern” over high unemployment for “the enormous suffering and waste of human talent it entails”, Michael O'Sullivan argues that we are failing to address the fundamental barriers to job growth here.
Showing posts with label job creation. Show all posts
Showing posts with label job creation. Show all posts
Wednesday, 17 October 2012
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.
Wednesday, 22 February 2012
The false economy of selling state assets to fund job creation
Sinéad Pentony: Today’s announcement provides us with some more details on the government’s thinking in relation to the role of state assets in our economy. The position has become more nuanced in some regards, as the sale of the ESB appears to the off the table (with the exception of some power generators) along with the sale of Bord Gais’s transmission and distribution systems. However, privatisation remains a clear policy focus for the government and a bitter pill is being sweetened with the promise of the proceeds of privatisation being used to fund job creation. But this is false economy.
We are hearing a lot about supporting job creation at the moment. Last week it was the Action Plan for Jobs, this week the sale of state assets will be used to support job creation and tomorrow the government will launch its Pathways to Work - the Government Policy Statement on Labour Market Activation.
Last week's TASC report on the Strategic Role of State Assets, along with today’s statement, clearly articulate the trade-off between short term and longer term investment priorities, with the latter increasing the capacity of the economy to grow and compete with other advanced knowledge-based economies. So the sale of strategic assets is a critical issue because it could actually cost us jobs in the medium-long term if we don’t have the infrastructure that facilitates and supports the functions of a dynamic advanced economy competing globally.
Last week the Action Plan for Jobs was announced. Any initiative aimed at promoting job creation is to be welcomed, and the focus of the Plan is on improving the conditions for doing business in Ireland. While ‘bold ambitions’ are to be admired, it’s difficult to see how the target of increasing the number of people in work by 100,000 – from 1.8 million to 1.9 million jobs by 2016 - can be realised, when the next three budgets are expected to take a further €9 billion out of the economy by 2016. One can only imagine the sorry state that the country will be in, in three years time - if we continue on the current path of austerity piled on top of more austerity.
On Monday night the Frontline programme was devoted to discussing the Action Plan. One of the panellists was businesswoman Glenna Lynch whose business has been struggling since the onset of the crisis and she has been forced to let people go. When asked what she thought about the Action Plan, she said that there was very little in it for her and that the problems she faces relate to the fact that successive austerity budgets are sucking money, demand and confidence out of the economy.
Pathways to Work is being launched tomorrow, the objective of which is to “drive the introduction of measures to improve the conditions for job creation across the economy and to ensure that the creation of these jobs feeds into a reduction in unemployment”. Our labour market activation policies have long been in need of reform, and they must reflect the complexities of the labour market in a modern economy.
In general the Action Plan for Jobs and Pathways to Work can be described as ‘supply-side’ measures, aimed at creating the conditions for businesses to create jobs and for people to be in a position to the take up jobs.
But how can businesses create jobs when the demand for their goods and services is static or shrinking because of budgetary measures?
What’s needed are a series of ‘demand-side’ measures aimed at creating demand for labour, and this requires investment. But this investment should not be financed from the sale of state assets, which should rather be used to support investment in the medium term. Instead, much needed short-term investment should be financed through the €4.7billion remaining in the NPRF, along with an initiative that allows part of the €5.3 billion held by Irish pension funds to be invested in infrastructural projects.
We are hearing a lot about supporting job creation at the moment. Last week it was the Action Plan for Jobs, this week the sale of state assets will be used to support job creation and tomorrow the government will launch its Pathways to Work - the Government Policy Statement on Labour Market Activation.
Last week's TASC report on the Strategic Role of State Assets, along with today’s statement, clearly articulate the trade-off between short term and longer term investment priorities, with the latter increasing the capacity of the economy to grow and compete with other advanced knowledge-based economies. So the sale of strategic assets is a critical issue because it could actually cost us jobs in the medium-long term if we don’t have the infrastructure that facilitates and supports the functions of a dynamic advanced economy competing globally.
Last week the Action Plan for Jobs was announced. Any initiative aimed at promoting job creation is to be welcomed, and the focus of the Plan is on improving the conditions for doing business in Ireland. While ‘bold ambitions’ are to be admired, it’s difficult to see how the target of increasing the number of people in work by 100,000 – from 1.8 million to 1.9 million jobs by 2016 - can be realised, when the next three budgets are expected to take a further €9 billion out of the economy by 2016. One can only imagine the sorry state that the country will be in, in three years time - if we continue on the current path of austerity piled on top of more austerity.
On Monday night the Frontline programme was devoted to discussing the Action Plan. One of the panellists was businesswoman Glenna Lynch whose business has been struggling since the onset of the crisis and she has been forced to let people go. When asked what she thought about the Action Plan, she said that there was very little in it for her and that the problems she faces relate to the fact that successive austerity budgets are sucking money, demand and confidence out of the economy.
Pathways to Work is being launched tomorrow, the objective of which is to “drive the introduction of measures to improve the conditions for job creation across the economy and to ensure that the creation of these jobs feeds into a reduction in unemployment”. Our labour market activation policies have long been in need of reform, and they must reflect the complexities of the labour market in a modern economy.
In general the Action Plan for Jobs and Pathways to Work can be described as ‘supply-side’ measures, aimed at creating the conditions for businesses to create jobs and for people to be in a position to the take up jobs.
But how can businesses create jobs when the demand for their goods and services is static or shrinking because of budgetary measures?
What’s needed are a series of ‘demand-side’ measures aimed at creating demand for labour, and this requires investment. But this investment should not be financed from the sale of state assets, which should rather be used to support investment in the medium term. Instead, much needed short-term investment should be financed through the €4.7billion remaining in the NPRF, along with an initiative that allows part of the €5.3 billion held by Irish pension funds to be invested in infrastructural projects.
Thursday, 23 June 2011
Cut Rents not Wages to Save Jobs in Retail
Nat O'Connor: Retail Excellence Ireland (REI) has released a survey of their members, which they contend shows that abolition of the JLC system would lead to thousands of jobs being created in retail (Press Release, 15 June 2011). There are good reasons to believe that this is a mistaken point of view.
REI got responses from nearly half their members, 342 companies which operate 4,445 stores, who said that if the JLC system was abolished that they would save 2,896 vulnerable jobs and create another 2,888. Treating this as a representative sample, REI estimate the total number of jobs created would be four times this, as there are c. 25,000 stores in Ireland.
There are three problems.
Firstly, good business sense does not add up to good economics. Say one business cuts the wages of its staff - that business has saved money and, all things being equal, should become more profitable (although staff performance might also fall). However, one stores's employee is another store's customer. If the 200,000+ generally lower paid workers protected by the JLC system all suffer pay cuts, that is going to lower demand in the economy; i.e. they are all going to have less money to spend in the local economy. And people on low wages spend most or all of their money. (All of this is basic economics). Hence, the companies consulted by REI might believe today that they could save and create jobs - but if demand falls, as it surely must from cutting the JLC system, than the same stores will find that they cannot expand employment after all.
Secondly, we cannot be sure if the 342 companies that responded to REI are in fact a representative sample. These companies have an average of 13 stores each, but there are many one-off stores among Ireland's 25,000. We do not know if these stores would be in the same position to save or create jobs. So, REI's multiplication by four might be over-stating the probability of job retention/creation.
Thirdly, the international evidence is broadly against any strong relationship between cutting wage levels and job creation. The strongest studies are of US States, and even counties within those states. These studies compare two areas side-by-side (with similar workforces, similar industries, etc) where one of them cuts wage protection and the other does not. Over time, no great difference in job creation is shown. This evidence strengthens TASC's confidence in the theory that while individual businesses may benefit from lower wage costs, they equally suffer from the economic effects of reduced demand. (See references below)
Therefore, it is fairly safe to assume that cutting the JLCs will neither save nor create jobs in retail.
There is hope however.
REI also found that the companies surveryed would save 7,791 vulnerable jobs and create 5,072 new jobs if the Upward Only Rent Review (UORR) was abolished. Unlike the JLC system, which affects demand that retail so badly needs, there is no such effect with rents. Most commercial landlords are higher income individuals or companies that save rather than spend most of their incomes. Therefore, cutting those incomes will not greatly affect retail demand as they are likely to cut their saving rate before they will drop their lifestyles (spending habits).
However, we still don't know if the multiplier of four would apply or to what extent these 4,445 stores experience of UORR is representative of others. In fact, city centres (where rents are highest) tend to be dominated by chain stores. So, it is possible that many one-off local stores are less affected by UORRs; although excessively high rents can be a problem for any business.
We could be more conservative than the REI and suggest merely doubling the survey findings to estimate the likely employment effects. That would mean abolition of UORRs could lead to c. 15,000 vulnerable jobs being saved and c. 10,000 new jobs being created.
On REI's website, there is a banner headline stating: "High Rents Are Killing Retail Jobs". In a similar vein, Declan Ronayne, MD of DSG Ireland (Currys, PC World, etc) spoke on RTÉ's Morning Ireland programme (23 June 2011, c. 8am) that the focus on JLCs was a mistake, and that rent levels was a much more pressing issue.
Economic theory and evidence concurs with this perspective. Cutting rents, not wages, is indeed likely to save and create jobs in retail.
References
Thanks to Tom McDonnell for these.
Card D. and A. Krueger (1994). Minimum Wages and Employment: A Case Study of the New Jersey and Pennsylvania Fast Food Industries. American Economic Review. 84(4), 772-793. Available here.
Dube, A, L, T. William, & Reich, M. (2010). Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties. UC Berkeley: Institute for Research on Labor and Employment. Available here.
The preface to this book puts the results into plainer English.
Note: the economy is a dynamic, complex system. Establishing causality is notoriously difficult in the social sciences. Just because a study argues there are ‘no employment effects’ or ‘substantial employment effects’ should never be grasped as proof about an underlying economic relationship. All we can ever have is estimated probabilities.
The Duffy/Walsh report made the point that there was evidence of publication bias in wage-floor research. Evidently ‘employment effect’ results were more likely to get published than ‘no employment effect’ results. They referenced this: Doucouliagos, H. and T. D. Stanley (2008). Publication Bias in Minimum-Wage Research? A Meta-Regression Analysis, British Journal of Industrial Relations.
REI got responses from nearly half their members, 342 companies which operate 4,445 stores, who said that if the JLC system was abolished that they would save 2,896 vulnerable jobs and create another 2,888. Treating this as a representative sample, REI estimate the total number of jobs created would be four times this, as there are c. 25,000 stores in Ireland.
There are three problems.
Firstly, good business sense does not add up to good economics. Say one business cuts the wages of its staff - that business has saved money and, all things being equal, should become more profitable (although staff performance might also fall). However, one stores's employee is another store's customer. If the 200,000+ generally lower paid workers protected by the JLC system all suffer pay cuts, that is going to lower demand in the economy; i.e. they are all going to have less money to spend in the local economy. And people on low wages spend most or all of their money. (All of this is basic economics). Hence, the companies consulted by REI might believe today that they could save and create jobs - but if demand falls, as it surely must from cutting the JLC system, than the same stores will find that they cannot expand employment after all.
Secondly, we cannot be sure if the 342 companies that responded to REI are in fact a representative sample. These companies have an average of 13 stores each, but there are many one-off stores among Ireland's 25,000. We do not know if these stores would be in the same position to save or create jobs. So, REI's multiplication by four might be over-stating the probability of job retention/creation.
Thirdly, the international evidence is broadly against any strong relationship between cutting wage levels and job creation. The strongest studies are of US States, and even counties within those states. These studies compare two areas side-by-side (with similar workforces, similar industries, etc) where one of them cuts wage protection and the other does not. Over time, no great difference in job creation is shown. This evidence strengthens TASC's confidence in the theory that while individual businesses may benefit from lower wage costs, they equally suffer from the economic effects of reduced demand. (See references below)
Therefore, it is fairly safe to assume that cutting the JLCs will neither save nor create jobs in retail.
There is hope however.
REI also found that the companies surveryed would save 7,791 vulnerable jobs and create 5,072 new jobs if the Upward Only Rent Review (UORR) was abolished. Unlike the JLC system, which affects demand that retail so badly needs, there is no such effect with rents. Most commercial landlords are higher income individuals or companies that save rather than spend most of their incomes. Therefore, cutting those incomes will not greatly affect retail demand as they are likely to cut their saving rate before they will drop their lifestyles (spending habits).
However, we still don't know if the multiplier of four would apply or to what extent these 4,445 stores experience of UORR is representative of others. In fact, city centres (where rents are highest) tend to be dominated by chain stores. So, it is possible that many one-off local stores are less affected by UORRs; although excessively high rents can be a problem for any business.
We could be more conservative than the REI and suggest merely doubling the survey findings to estimate the likely employment effects. That would mean abolition of UORRs could lead to c. 15,000 vulnerable jobs being saved and c. 10,000 new jobs being created.
On REI's website, there is a banner headline stating: "High Rents Are Killing Retail Jobs". In a similar vein, Declan Ronayne, MD of DSG Ireland (Currys, PC World, etc) spoke on RTÉ's Morning Ireland programme (23 June 2011, c. 8am) that the focus on JLCs was a mistake, and that rent levels was a much more pressing issue.
Economic theory and evidence concurs with this perspective. Cutting rents, not wages, is indeed likely to save and create jobs in retail.
References
Thanks to Tom McDonnell for these.
Card D. and A. Krueger (1994). Minimum Wages and Employment: A Case Study of the New Jersey and Pennsylvania Fast Food Industries. American Economic Review. 84(4), 772-793. Available here.
Dube, A, L, T. William, & Reich, M. (2010). Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties. UC Berkeley: Institute for Research on Labor and Employment. Available here.
The preface to this book puts the results into plainer English.
Note: the economy is a dynamic, complex system. Establishing causality is notoriously difficult in the social sciences. Just because a study argues there are ‘no employment effects’ or ‘substantial employment effects’ should never be grasped as proof about an underlying economic relationship. All we can ever have is estimated probabilities.
The Duffy/Walsh report made the point that there was evidence of publication bias in wage-floor research. Evidently ‘employment effect’ results were more likely to get published than ‘no employment effect’ results. They referenced this: Doucouliagos, H. and T. D. Stanley (2008). Publication Bias in Minimum-Wage Research? A Meta-Regression Analysis, British Journal of Industrial Relations.
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