Bill Gates Proposes a Tax on Robots

Paul Sweeney: There has been a lot of media discussion recently about the increasing possibility of robots displacing workers. 

When Bill Gates, founder of Microsoft, suggests an income tax on robots, then we know the potential disruption by robots of jobs is serious. “You ought to be willing to raise the tax level and even slow down the speed” of automation, Gates argues here.

A Progressive Development (growth) Policy for Europe

Paul Sweeney: Did you know that last year 22.9 million people in the EU were unemployed, of which, a staggering 10.9 million people were long-term unemployed. At the current pace of reduction, the unemployment rate would take 7 years to return to its pre-crisis level in Europe. This is one of the many interesting points in a new economic study from European progressive economists.

The authors of the Independent Annual Growth Study “The Elusive Recovery”, expect that economic growth is going to slow down in the EU in 2017 to 1.6% after 1.9 % in 2016 and to 1.5% in 2018 because “tail-winds are turning into headwinds.” Brexit, higher oil prices and especially the slowdown in trade will impact negatively, along with uncertain politics.

Launch of NERI Quarterly Economic Observer/Facts

The NERI has published, today, its fourth Quarterly Economic Observer (QEO) along with the latest Quarterly Economic Facts (QEF). A link to the full QEO together with a short summary of key points is contained here.

The QEF may be accessed here.

Later today staff of the NERI will present these publications at a special seminar at 3pm (earlier time than normal NERI seminars) in Dublin. All are very welcome to attend. Details are here.

The next (Spring 2013) QEO will be focussed primarily on the Northern Ireland economy while retaining the NERI's all-island mandate in the publication itself.

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.

TASC submission on unemployment

Sinéad Pentony: In a submission to the Oireachtas Committee on Jobs, Social Protection and Education, TASC has looked at a number of key questions.

The submission provides an overview of unemployment, which clearly illustrates the scale of the crisis and who is being most affected. There are clear inequalities in the labour market within and between generations. Those previously unemployed in craft and related areas represent over one third of those who are on the live register and this group is more likely to have lower levels of education and skills. Almost one third of young people are unemployed. The reasons for this include a lack of jobs, low levels of education and training coupled with limited work experience and the fact that young people are more likely to lose their jobs in economic downturns.

The submission also considers the measures that Government is taking to address the problem, which includes reform of labour market activation policy – Pathways to Work, and the Government’s Action Plan for Jobs. These measures include some long over-due reforms, but they will not address the unemployment crisis, as it is primarily a demand-side problem – the demand for labour is less than the available supply of labour and addressing this issue requires a targeted programme of investment and economic growth.

Finally, the submission considers the issue of youth unemployment and puts forward a number of recommendations that include improving the quality of existing policies aimed at providing young people with valuable work experience and training; assessing the feasibility of providing a ‘Youth Job Guarantee’; assisting young people to become entrepreneurs; and targeted education and training initiatives aimed at young people with no formal qualifications.

Pathways to Work - can it deliver?

Sinéad Pentony: Pathways to Work was launched last week and it sets out to achieve some much needed reform in relation to labour market activation measures. The ambition “is to develop a new approach to engagement with people who are unemployed which meets international best practice”. Plans to increase the level of engagement with people who are unemployed and greater targeting of activation places are essential ingredients of an effective active labour market policy. Pathways also includes measures aimed at ‘incentivising’ unemployed people to take up employment opportunities and incentives for employers to take on unemployed people. The final element focuses on reforming institutions to deliver services to people who are unemployed. But can it deliver?

Pathways to Work rightly draws on international best practice which has increased levels of engagement with unemployed people as a central plank in its active labour market measures and this measure will be rolled out through the National Employment and Entitlement Service (NEES). This will take time, resources and institutional reform if it is going to achieve the objective of a work-focused welfare payment and effective and targeted service delivery.

Unfortunately, it appears that increased levels of engagement will only target those who are newly unemployed and in a number of pilot areas, in the first instance. This means that the vast majority of people currently on the live register will not benefit from an improved service. There are also plans to target activation measures at approximately 15,000-20,000 people who are long term unemployed per year, up until 2015. Again, the scale of the interventions planned for the long-term unemployed is not sufficient to deal with the scale of the problem, with over 180,000 classed as being on the Live Register for more than one year.

To get an idea of the scale of investment as a percentage of GDP by countries which have highly developed active labour market measures - in Ireland (2009) we spent 0.87 per cent of GDP on active labour market measures, while countries such as Denmark and Sweden spent 1.62 per cent and 1.13 per cent, respectively. This spending also needs to be put in the context of the fact we have many more people unemployed and long-term unemployed than these countries.

International best practice is drawn from countries that have highly developed activation measures. Nordic labour policy fosters the human capital of the population, while at the same time deploying activation mechanisms which also include an obligation to work. The services provided place a strong emphasis on quality – and the occupational and skill requirements with regard to the staff are high. Regular evaluations and examinations of their knowledge are the norm.

The institutional reform required in Ireland cannot be underestimated. If Pathways to Work is going to achieve best practice, this will require a different set of skills and capacities within the NEES, which may not currently exist. The ESRI report on Activation in Ireland shows how far we need to go in providing the types of training that are needed to improve people’s prospects of re-entering the labour market. The report highlights the pre-dominance of general and low skill training activity, which is unlikely to have strong positive impacts on employment prospects. The research also found that training provision is out of sync with the educational profile of unemployed people and that it does not address the structural employment among former construction workers. Finally, the report calls for a radical restructuring of training provision.

If the NEES is focused on providing a quality service where people are supported through individual progression plans, there should be very little need for ‘sanctions’ to be applied because the vast majority of people are desperate to find a job. However, there is a danger that rolling out such a service in the absence of building the institutional capacity and the capacity of those delivering the service may result in the over-use of ‘sanctions’ on those who are considered to be ‘not engaging’ with the service because there is little/no emphasis put on finding out why a person may not be engaging with the service or if there are aspects of the service that are not meeting the needs of the service user.

Another element of Pathways to Work is ‘incentivisation’ – of those who are unemployed to take up jobs, along with incentives for employers to take on unemployed workers. In the case of employers there are a range of measures that reduce the cost of employing people, which make sense in times of recession and high unemployment.

In the case of ‘incentivising’ unemployed people, a number of reforms are planned to streamline working age payments, child income support and disability allowances. These reforms include moving lone parents onto working age payments over time. However, the main barrier preventing lone parents from accessing education and training opportunities and/or employment opportunities is the provision of affordable childcare and afterschool care, and the absence of jobs with flexible arrangements. So, what will happen to lone parents who are expected to be ‘available for work’ but are unable to take up education/training opportunities or employment because of the absence of flexible arrangements and affordable child/afterschool care? Will they be sanctioned?

Other changes include increasing the USC threshold to €10,036, which is welcomed but the benefits of this are likely to be offset by reducing the social welfare week from 6 to 5 days. In general, the last number of years have seen cuts in direct and indirect social welfare payments, which is having a devastating impact on low income households. This is reflected in growing numbers of families at risk of poverty and experiencing poverty along with growing income inequality as evidenced by the latest SILC statistics. The recently published report on A Minimum Income Standard for Ireland also clearly demonstrates that many households in situations of reliance on social welfare or the national minimum wage live on an insufficient income. It is essential that reform of tax and welfare measures should not be equated with cuts, but that reform results in the better targeting of resources and supports at those who need them the most. Only then will we see a reversal of the current poverty and inequality trends.

The final element of Pathways to Work is institutional reform, which has been mentioned above. This includes plans to introduce ‘payment by results’, whereby the private sector is contracted to provide activation services for long-term unemployed. The report cites experience in the UK and Australia, asserting that it has “proven effective in supporting the unemployed to secure employment”. This system is operating less than a year in the UK and there are no independent evaluations available at this point in time.

However, the UK National Audit Office recently published a report on the introduction of the Work Programme in the UK, which examines ‘payment by results’. Some of the findings include “a significant risk that ministers’ assumptions about the numbers who can be found jobs may be over-optimistic”. The contractual arrangements with private providers are also questioned because of the programme’s demanding targets which “may encourage providers to target easier-to-help claimants while not helping others... and reduce the level of service provided in order to reduce costs...” There are also issues identified in relation to private providers operating in areas of high unemployment and how “they may struggle to meet nationally set targets”. The Report clearly articulates a whole host of other ‘risks’ associated with the Programme, which highlight the complexities behind what can often appear straightforward ‘payment by results measures’, which can actually result in diminished services and 'cherry picking' people who are easier to place in employment.

The Report also identifies the future state of the economy as a key indicator of success and this means the availability of jobs. While Pathways to Work will hopefully deliver some much needed reform, its success will depend on whether or not the economy is growing and creating jobs. Unemployment is primarily a ‘demand-side’ problem which needs demand-side solutions, and central to this is investment, along with measures that protect low incomes, which maintain aggregate demand in the domestic economy.

26 into one won't go

Michael Taft: Media outlets are reporting a new crackdown on the unemployed. Apparently, the Department of Social Protection intends to introduce new regulations whereby ‘target-dates’ for exiting the Live Register will be set for different categories of unemployed. If someone remains on the Live Register past that target-date, they may be subject to a new set of interviews and investigations which could lead to reductions or even ending their unemployment payment. This, no doubt, reflects the Minister’s description of unemployment as a ‘life-style’ choice for a growing number of jobless, especially young jobless.

This also reflects a new twist in victimising the unemployed for a crisis not of their making.

This also reflects a policy mind-set that is detached from the reality of the labour market and even from the Government’s own employment projections.

First, Eurostat produces a ‘job vacancy rate’ which measures the number of job vacancies in the EU economies. Using this we can estimate how the number of job vacancies compares with the actual number of unemployed. What is the ratio of unemployed per job vacancy in Ireland? 26:1. Let’s ‘reflect’ on that for a moment.

There are 26 unemployed people for every 1 job vacancy.

How do we compare with other EU countries? The first chart shows the figures for the 23 EU countries whose data are available at Eurostat. The numbers are calculated from the Eurostat data using conservative assumptions that if anything are likely to result in an underestimate of the figures shown. Ireland is one of the worst performers in the EU. It ranks 4th last out of 23 countries reporting, with more than three times the EU-27 ratio of unemployed per vacancy. The figures for some countries require some qualification, but are mostly accurate enough to provide a reasonable picture across Europe.

However, the crucial point is that one can interview, examine and investigate the unemployed for as long as whenever – if there are 26 people chasing one vacancy, then the dole queues will continue to stretch out on to the street. To threaten reduction or suspension of unemployment payments in such conditions is little short of callous.

But this is all convenient for the Government because it takes attention away from the driving force behind unemployment – the simple lack of jobs. It also takes attention away to the Government’s self-admitted losing battle over job creation:

• In April of last year the Government projected that there would be over 100,000 new net jobs in the economy by 2015.
• In the last budget they reduced this job creation projection to 62,000.
This explains why they revised their unemployment projections in 2015 from 10 percent (in April 2011) to 11.6 percent in the last budget.

Indeed, the Government has admitted that there will be no short-term relief from unemployment. In the Regulatory Impact Analysis in the appendix of the Industrial Relations (Amendment) (No.3) Bill, 2011, the Government openly admits:

‘Ireland has experienced a very sharp increase in unemployment in recent years, with little prospect of improvement in the short term . . . ‘

So with employment projections shrinking, unemployment projections rising, and a public admission that the jobless situation will not improve in the short-term, the Government thinks it’s a good idea to start targeting the unemployed, rather than the policies that would get them back to work.

No matter what is done using supply-side policies –through training, up-skilling or negative incentives – you cannot squeeze 310,000 unemployed into the approximately 13,000 total jobs that are available (calculated from the most recent Eurostat data, 3rd quarter 2011). Even if all the vacancies are filled instantly, approximately 300,000 will remain unemployed. Essentially, what training does in terms of unemployment in this situation is to change the names of the lucky ones to get jobs.

It has been also argued that the problem is a mismatch between the unemployed and the jobs available. These figures give the lie to that as the central problem. It is true that there are skill mismatches, notably due to the downsizing of the swollen construction sector in the boom. However, the large majority of these workers could be employed in other sectors with a certain amount of re-training - but only if the jobs are there. And herein lies the rub. There are few jobs as the data above show. Punishing people will not solve the problem. Only the provision of jobs will.

Ireland has 59.3% of the unemployed out of work for at least a year, over 180,000 people, and this number has increased sharply, well above that of the EU countries as a whole, as the second chart shows. The reason the unemployed are out of work is due to the lack of jobs, and not a sudden bout of laziness in the population. In the 27 countries of the EU, Ireland has the third highest long-term unemployment share among total unemployment, after Slovakia and Bulgaria, both of which had particular historical problems including the de-industrialisation that followed the shift from Communism.

By delaying the solution to this problem, permanent damage is done to the prospects of many unemployed, as many studies show, referring to a lasting “scarring” effect. Youth unemployment is also particularly high in Ireland compared to other EU countries, coming 6th last in the ranking with a 30% unemployment rate among youth.

While measures to support the long-term unemployed will certainly be welcomed, Breda O’Brien from the Irish National Organisation of the Unemployed is sceptical:
"Breda O’Brien said the new service would assess people but that the supports offered to those with a higher probability of re-entering employment would be minimal. 'The Government has to seriously address this issue. It cannot be threatening people to have their social welfare cut if there is no job there'.”

Reducing or cutting off unemployment pay becomes a matter of punishing the unemployed, something that was supposed to have gone out with the Poor Law of centuries past. Why is policy regressing to this approach of Victorian times? And why are the unemployed being made scapegoats for failing employment policies?

Supply-side policies of any kind – the only ones that are being tried – simply cannot work in this context. Only demand-side policies that actually create the required number of jobs can have an effect on unemployment of any significance.
I am grateful to Ronan O’Brien for his contribution to the data and analysis.

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

A new deal is required

Tom McDonnell: On Monday and Tuesday we will be treated to the latest instalments of the austerity show. While the structural deficit does need to be closed there are good and bad ways to do this. What we almost certainly wont get next week is a credible growth strategy.

It is clear the current pro cyclical fiscal stance is embedding the depression. Long-term unemployment is now at crisis levels and there is a huge risk that high levels of cyclical unemployment will transform into high levels of structural unemployment with disastrous long-term social impacts. Out debt burden (public and private) is consistent with years of future stagnation. If we cannot reduce the debt burden or spark nominal GDP growth then the next few years will be very grim.

We have a Euro zone wide failure of policy. The institutional architecture of the currency union has failed. This is not a cause for shame. Prototypes and innovations fail all of the time. But we have now put the Euro through its paces and it has burst into flames at the first sign of adversity. We must learn the lessons and causes of failure if we are to improve the model. We know the reasons for its failure. A common currency without a fiscal union is incoherent. There are a number of design flaws including:

1. Imposing a single interest rate over a non-optimal currency area amplifies booms and busts
2. The absence of a lender of last resort magnifies the likelihood of sovereign debt crises
3. There are no mechanisms, protocols or conditions for writing down debt
4. There is no EU-wide special resolution regime for banks
5. There are no centralised fiscal mechanisms to provide counter cyclical support for depressed regions
6. There is no transfer mechanism to compensate countries blighted with an overvalued currency
7. There is no centralised financial regulation
and yes
8. There is insufficient budgetary coordination and integration - although this demands greater democratic accountability

All of these mistakes need to be rectified. It seems reasonable to ask whether the Euro is worth saving. Yet the consequences of a Euro break up are likely to be catastrophic.

It is evident the Greek write-down does not go far enough. Write downs or restructurings are probably required for other countries including Ireland. We could start with the promissory notes. But reducing the debt is just one side of the equation. The other side is growth.

We need a new deal for Europe and for Ireland. A new Marshall plan. A deal that would allow the continent to recover. A sister organisation to the ECB responsible for fiscal policy and economic growth should be established. A beefed up European Investment Bank is one candidate to occupy this role.

The greatest challenge for the Irish Government and for Europe is to get its people back to work. Austerity will not achieve this. In Ireland we need programmes to transform the skill sets of the unemployed and other workers to match the needs of the economy. The G.I. bill in the United States is one model we could pursue. The G.I. Bill was a law that provided vocational or college education for returning World War II veterans. The simple fact is the skill base of the unemployed segment of Ireland's labour force is likely to be far out of step with the future needs of the economy. This is particularly the case for the 100,000+ former construction workers that have lost their jobs. For many of these workers there is little prospect of future employment in Ireland. Yes this will cost money, but we still have €5 billion in the National Pension Reserve Fund.

As the weeks pass into years hope for the long term unemployed fades farther into the distance. The Government has an opportunity to start turning the tide next week. It is time for a new deal.

NESC Report on Responses to Unemployment Crisis

Sinéad Pentony: Earlier this week NESC published its latest Report on Supports and Services for Unemployed Jobseekers: Challenges and Opportunities in a Time of Recession. The report states that the labour market will take years to recover and it rightly points out that “the exporting sectors play an indispensible but limited role in attaining high employment rates...until there is a revival of domestic demand, a large proportion of those now unemployed face bleak employment prospects.” Solving the jobs crisis requires interventions that address issues relating to the demand and supply of labour.

On the demand side, the jobs crisis cannot be solved in the absence of maintaining and increasing demand in the domestic economy. The current programme of austerity continues to ravage the domestic economy, which will lead to further job losses, ever-growing queues and accelerated emigration. Efforts to achieve short-term financial gain will have long-term social and economic costs.

In the context of the current phase of the global financial and economic crisis there are renewed calls for measures to stimulate economic activity. Demand can be maintained and increased by protecting incomes, especially those at the lowest level because they have the highest propensity to spend everything they earn in order to meet their basic needs; maintaining and increasing the rates of social spending e.g. Iceland. There are also the old reliables of increasing investment in human and physical capital.

On the supply-side, the NESC report highlights the need for improved activation strategies and acknowledges that changes are underway with the reconfiguration of delivering employment services. However, the report states that further reforms should be guided by a long-term vision of what constitutes an effective unemployment regime in a knowledge-based economy, and be imbued “with greater empathy and less suspicion towards those who have lost their jobs or the misfortune to be seeking a first one” at this time.

A long-term vision of an effective unemployment regime should be informed by a wider goals of achieving strong economic performance and combining it with a welfare state that offers comprehensive protection against social risks and investment in lifelong learning. There is a large body of literature in this area, and a recent paper on Scandinavian Labour and Social Policy provides a useful overview of how it is possible to integrate employment policy with active labour market measures and social services that support families and healthcare policy. Of course all of this comes at a price “...Nordic tax and finance policy extracts enormous sums from the economy and redistributes them in accordance with policy guidelines.” Is it not a price worth paying?

OECD Policy Responses to Unemployment

Sinead Pentony: The OECD has pre-released a chapter from its forthcoming Economic Outlook 2011 Report on the Persistence of High Unemployment: What Risks? What Policies? The report finds that at the end of 2010, “the average OECD unemployment rate was still close to historical peak reached during the crisis”. In countries (such as Ireland and Spain) that have been severely hit, persistently high levels of unemployment will eventually result in widespread deterioration of human capital (skills and competencies), discouragement and labour market withdrawal. This Report puts the scale of Ireland’s unemployment crisis in an OECD context and it makes three main policy proposals that are certainly worth considering as part of the Government's planned ‘Jobs Initiative’ which is due to be launched in May.

First of all, the report shows us how Spain and Ireland have been particularly badly hit by increases in unemployment. While Ireland is a few percentage points behind Spain (see Figure 1 reproduced below), it can be argued that net outward migration is having a dampening effect on the figure for Ireland. The drain of highly skilled workers out of Ireland, who are also of course members of families and communities, will have major long-term social and economic costs for the country.

Figure 1: The Increase in unemployment rates following the crisis (2007 Q3 – 2010 Q4)


The Report argues that aggregate demand policies continue to have a role to play in supporting economic recovery and in stimulating job growth. And monetary policy has been used by many OECD countries to increase aggregate demand by keeping interest rates low. However, the recent interest rate increase by the ECB - with indications given that there are more increases to come in 2011 – will hamper the efforts of policy makers in the three countries in the Euro Area (Spain, Ireland and Greece) that have seen the largest increases in the rate of unemployment in the OECD.
The Report also identifies a number of measures that have protected some countries employment levels from the worst effects of the crisis. “Labour hoarding” in particular, is singled out through the introduction of state subsidised ‘short-time working’ arrangements. The OECD place a lot of emphasis on the effectiveness of this measure in protecting employment levels, notwithstanding the risks which are outlined in the report.

The OECD also demonstrate the adjustment in labour markets in terms of the decline in output. As we can see (Figure 2 reproduced below), Ireland is an outlier in this regard. The OECD contends that “in the majority of countries, total hours worked declined less than GDP as the output shock was partly absorbed through labour hoarding.” Higher levels of job losses were also concentrated in low-productivity sectors such as construction. Countries such as Ireland, USA and Spain were identified as having higher than average proportions of workers in these sectors, which is reflected in higher than average reductions in hours worked.

Figure 2: Percentage decline in GDP and total hours worked from peak to trough


The OECD also examine nominal wage and labour costs. In most countries, wages decelerated sharply with labour costs also largely decelerating. The data presented in Figure 5 in the OECD report (reproduced below) shows changes to wages and labour costs before and after the crisis. What we find is that increases in nominal wages and unit labour costs just before the crisis hit were broadly in line with increases in the OECD. See here for a further discussion on unit labour costs. The OECD data shows that Ireland had the second lowest growth in nominal wages in the OECD between 2009Q1-2010Q2, and the largest fall in labour costs in the OECD during the same period.

Figure 5: Annualised average percentage change in nominal wages and unit labour costs before and after the crisis.




The three main policy proposals in the OECD report are as follows:

1. Temporarily extend unemployment benefits in countries where such systems are weak so as to provide needed income support ensuring that unemployed workers currently facing bleak jobs prospects do not fall into poverty or lose attachment to the labour market. This should be combined with active labour market policies that are adequately resourced to provide appropriate levels of job-search assistance and training.

The timing of the break-up and re-branding of FÁS is unfortunate given the unprecedented need and demand for targeted active labour market supports and services. The OECD identified effective and efficient services for the unemployed as “a structural determinant of outflows” from unemployment into jobs. Active labour market policies are an essential component of resolving the jobs crisis.

2. The second policy proposal relates to providing temporary hiring subsidies. The OECD highlights the fact that in many countries, the most difficult cases to match - long-term unemployed with low levels of skills - are often addressed through jobs subsidies or direct public-sector job creation targeted at specific groups. Policies aimed at stimulating labour demand included temporary cuts to employer social security contributions.

The OECD found this measure to be cost effective and involve a smaller deadweight loss. Current policy here includes PRSI exemption for taking on new employees and cuts to employer PRSI are expected as part of the forthcoming Jobs Initiative. However, Ireland already had the second lowest level of employer social security contributions in the EU 15 in 2008, which means that taxes on labour (from the employer perspective) are already very low.

The OECD identifies longer term taxation policy measures that are less damaging on employment and growth. These include a property tax, environmental taxes and consumption taxes – there is no mention of the regressive nature of consumption taxes, however, different rates of VAT could be used to lessen the regressive effects, with luxury items being liable for higher rates of VAT than items used to meet basic needs.

3. The third area relates to investment in training and education. The OECD found that younger workers have been much harder hit by the crisis than older workers and that it is younger workers who are now most at risk of chronic long term unemployment. With youth unemployment currently running at over 25 per cent in Ireland there is clearly a need for targeted interventions and supports for this group, especially those with low levels of education and skills, which puts them at a much higher risk of becoming long term unemployed.

While the number of traineeships and internships for new graduates and recently qualified workers has been expanded, they may well be insufficient to meet demand. Also, there remains a large cohort of young people that need a variety of education and training supports for the purpose of up-skilling /re-skilling if they are going to have any chance of success in re-entering the labour market.

Unemployment highest since 1989

Slí Eile: Involuntary unemployment is long recognised as both the enemy of human dignity and a huge waste of human potential capital. The latest data on unemployment from the Central Statistics Office here indicates a worrying growth in unemployment. There has been a significant increase in the rate of unemployment in the last quarter of 2010 over the previous quarter of 2010.
Seasonally adjusted the rate went up to 14.7% (from 13.7%). At a rate of 15%, the rate is now almost three times what it was three years ago before the crash of 2008. To put this context unemployment is now approaching the level last seen in April 1989 (when the rate was 15%). The rate was at its highest in 1985 and 1986 (at 16.8 annual average % rate).
However, the CSO offer yet another very telling statistic. It is referred to as ‘S3’. It refers to: “Unemployed plus marginally attached plus others not in education who want work plus underemployed part-time workers as a percentage of the Labour Force plus marginally attached plus others not in education who want work.”
In plain language it is the number of those out of work together with those who would work but have given up looking. This figure comes to 23% of the total potentially available to work. Add to this a large figure by way of net outward migration. In the 24 month period up to April 2010 an estimated 130,000 persons emigrated from Ireland. However, this was balanced by an inflow of 88,000 according to the latest CSO estimates here.

The estimated net outflow over those two years was therefore in the order of 42,000. It should be possible to firm up these estimates once the results of the 2011 Census of Population are known later this year.
A major problem is the growth in long-term unemployment to over 50% of the total at 7.3% in the fourth quarter of 2010. In other words there was an estimated 154,000 persons unemployed for more than 12 months and still living in Ireland.

The position of young people – especially those who have left school early is perilous. Take the data here which show that one in two young men between the ages of 18 and 24 who have left school early (without a Leaving Cert or equivalent) and are still living in Ireland is seeking work. A further one in four is in a job while the remainder is not ‘economically active’. For young women aged between 18 and 24 one in two is not ‘economically active’ while one in four is seeking employment.

As part of the drive to shrink the public sector Governments are committed to reducing numbers in the public sector. So far, the reduction is significant. Based on data in Table 1.1 of the latest CSO release, the numbers are down by 24,000 since the end of 2008 (from 427,000 to 403,000 in December 2010). Most of this fall occurred in 2009 (20,000) and 4,000 occurred in 2010. Government is committed to a further reduction of 25,000 (although the size of the public sector here is less than elsewhere according to the latest OECD data on public sector employment).

In Quarter 3, unemployment, here, was 6th highest in the EU. The broad public sector was, traditionally, a major employer of school leavers, apprentices and graduates. Not any more. The theory of crowding in of private investment, export led growth and rising market share as taxes, wages and other costs are reduced constitutes the long-term FF-IMF-EU plan to get the economy moving and jobs coming on line again. The new Government has promised fast action and the creation of a ‘Jobs fund’ within 100 days of coming to office. Time will tell. The signs from the grocery, banking, pub and manufacturing sectors are not good as further shake-outs are in prospect. In the meantime, economist Morgan Kelly’s apocalyptic forecasts made in January 2009 of unemployment soaring to 15%, 20% wage cuts and tumbling house prices are not so fanciful after all. That was before we knew something of the scale of zombie banks. And we are far from turning the corner.

Cometh the hour...

Slí Eile: If the experience of the past 30 months has shown us anything it is how unstable, unpredictable and volatile the domestic economy is and, along with it, domestic politics. The range in GDP or GNP forecasts is one such indicator. It is easy (and convenient for some) to forget about 'turning the corner' and 'green shoots' around this time 12 months ago. Times move on. In terms of GNP the latest forecasts from the IMF indicate continuing contaction all the way up to early 2012 where they forecast an extremely modest growth of 0.8%. The Central Bank is more upbeat projecting 1.5% growth in GNP in 2012 following more contraction this year. Behind this headline figure are three significant underliers:

* Falling consumer demand up to the end of 2011 followed by scarcely any volume growth in 2012 (+0.2%).
* According to the Central Bank investment (Gross Fixed Capital Formation) will slump in 2011 and decline modestly in 2012 and
* government consumption will continue to decline in 2011 and 2012. All of this is according to the Great Four Year Plan.
You have guessed where the leap comes from - exports. They are set to grow by around 5-6% per annum this year and next following a big spurt in 2010 at 8%. This is very much driven by a recovery in world trade - at least for now.

Economic policy has become a one-hand-clapping strategy = WAGE CUTS = COMPETITIVENESS = EXPORTS = ECONOMIC RECOVERY. That's the message plain and simple. Sorry about unemployment, poverty and emigration. There is no alternative. And silly any politician who tries to negotiate on the overall size of the deflationary strategy (as distinct from the composition and timing of this) - the received wisdom is that beggars cannot be choosers and we have no cards left to play. We just have to take it on the chin and keep driving wages and public spending down until market confidence is restored. But, you can fool some of the markets all the time and all the markets some of the time. But, you can't fool all the markets all of the time. Hello Eurozone crisis II.

If the IMF and Central Bank (and ESRI) happen to be right then the prospects for employment and consumer spending and infrastructual investment look very bleak indeed - and these along with exports are vital to recovery and debt-reduction in the long-run. In political terms the authorities have chosen to 'default' on the home labour market with high numbers out of work and emigrating rather than 'default' on private debt now transferred to citizens' debt.

To argue, as some do, that deposits and bonds are on an equal footing in Irish law is outrageous, If this stands up in any court then change the law. People as in children, the sick, the young unemployed as well as everyone else come before man-made laws.

In relation to forecasts, it would be more accurate to describe these as technical working scenarios based on a particular set of assumptions (which are not always spelt out in public). In other words, the foreseen future is based on past relationships and future extrapolations based on particular chosen assumptions. Nothing fundamentally wrong with that - but lets not imagine that anything in this world quite behaves and reacts like the way macro-economic forecasting says it must. Markets, Governments (and the weather!) have a mind of their own. And so do voters later this month.

What is so desperately needed now, today is a coherent set of agreed policies on a wide range of key issues that can command a progressive consensus. Such a consensus needs to spell out the 'non-negotiables' - the red line issues beyond which no party to the agreement will go into Government or support a Taoiseach. One may not transform Ireland in four years and achieve well-being, prosperity and fairness all at once - but it is the direction of movement that matters and the soundness of any strategy to address the twin scourges of unemployment and debt (all types of debt and not just governmental and corporate-banking).

Has Unemployment Stabilised?

Nat O'Connor: Unemployed decreased by 6,600 (seasonally adjusted) if you compare October 2010 figures with those of September 2010. Yet, October’s figures are an increase of 17,400 (also seasonally adjusted) from 2009. (CSO source here). Stablising or not, it clearly remains essential to bring as many ideas as possible on the table to maximise job creation.

The Government has welcomed the fall in unemployment, calling it signs of a “stabilising economy”, however they recognise the ongoing jobs challenge.

“Minister Ó Cuív referred to number of key strategic initiatives to create new jobs and to get people back to work; the five-year integrated plan for trade, tourism and investment, aimed at generating 300,000 jobs and boosting exports by one third, and the €500 million Innovation Fund-Ireland which aims to draw top venture capitalists to Ireland.”

The Government is also welcoming a decline in redundancies.

Labour spokesperson on Enterprise, Trade and Employment Willie Penrose has provided a longer list of measures to “generate the conditions where job creation can flourish”.

These include:
- Using €2 billion from the pension reserve fund to establish a strategic investment bank to get credit to the SME sector and to invest in infrastructure;
- Targetting clean technology, food, tourism, cultural and creative industries for job creation;
- Banning of upward only rent reviews;
- Reforming the PRSI exemption scheme to incentivise employers to take on extra staff;
- Creating 20,000 places on a six-month placement scheme in both the public and private sector;
- Reducing the qualifying period for Back to Education and Back to Work Enterprise Allowance to three months, and allow far greater access to post-graduate courses;
- Increasing the Back to Education Initiative by 6,000 places;
- Lifting the cap on VEC further education places and create an additional 10,000 places;
- Expanding VTOS by 20%. Create one thousand extra places for young jobseekers;
- Creating a skills exchange in VECs, FAS training Colleges, and Institutes of Technology;
- Providing more support services for jobseekers through the amalgamation of FAS employment services with the Department of Social Protection, and through integration with other key training and education agencies.

Labour's proposals point towards expanding or reforming existing schemes. These are policies that can be rolled out quickly, which is vital. The question of eliminating all remaining 'upward only' rent contracts is also worth serious consideration.

Meanwhile, Fine Gael have proposals under the heading of Getting Ireland Working Again.

They would:
- Immediately cut taxes on jobs and struggling sectors of the economy;
- Start a new National Recovery Bank to ease credit conditions for families and small businesses;
- Create 105,000 jobs through an €18 billion upgrading of water, broadband and energy, paid for in part by selling assets that the State no longer needs (i.e. their NewERA plan);
- Use the social welfare budget to expand second chance education, training and internship opportunities;
- Help small businesses, exporters and inward investors by forcing down high prices for rent, electricity, transport and professional services.

Fine Gael add one specific policy to the jobs debate: doubling Ireland’s sector that provides education to international students. This is perhaps a useful reminder that job creation requires a focus on the ‘micro’ economy; industry-by-industry, sub-sector-by-sub-sector.

It is important to note deep differences underlying the Labour and Fine Gael approaches. Labour want to use the NPRF to get credit to SMEs. They also call for higher taxes. And they focus on reforming the links between the welfare system and employment support services. Whereas Fine Gael are talking about tax cuts, and their policy on social welfare is more menacing, where they state: "instead of encouraging idleness, dependency and poverty for younger unemployed people, we would use the social welfare budget to expand second chance education, training and internship opportunities." This suggests cutting welfare rates to 'incentivise' employment - regardless of the hardship or the deflationary decrease in aggregate demand in the economy it would cause.

Why do we pay people social welfare?

Nat O'Connor: We pay people social welfare because, in a democracy, every participant is entitled to a minimum share of our national wealth to provide themselves with the essentials for survival.

In which case, we should be worried if a proposed Government policy threatens to undermine the democratic basis for the social welfare system.

It is reported that the Minister for Social Protection has announced a new scheme for recipients of Jobseekers Allowance (JA) to engage in social employment "for 19.5 hours work every week by helping out with local after-school and childcare services, sports clubs, services for older people and environmental projects".

Note: JA is the allowance people apply for once the period of their Jobseekers Benefit (JB) expires. JB is an entitlement, based on social insurance payments, whereas JA has to be applied for and payments are means-tested. It is worth noting that recent budgets have shortened by three months the period for which people can claim JB, as well as doubling the amount of social insurance contributions required to receive it in the first place. So more people have been pushed towards JA, where payments to people under-25 have been much reduced.

The Minister is quoted as saying "We must create a better future for people who find themselves without a job; to provide them with work activity in the short term, to up-skill them and give them opportunities to get back into the mainstream workforce as speedily as possible."

These are real incentives and it is to be welcomed that people should have an opportunity to do some useful work while unemployed. However, the carrots are matched with a big stick. It is reported that "Those who fail to show up or miss hours will be struck off the dole under the plans."

The above report is not backed up by the official press release, which simply reports that employment schemes are being transfered to the Department of Social Protection, which was already flagged by the Taoiseach when he 'reshuffled' the cabinet recently. So, we can assume the Irish Independent had a further interview or some other information to draw on.

Anyway, if someone is flying a kite about 'workfare' there are a host of problems to be considered with this approach, including:

1. Forcing people to engage in 'voluntary' work may undermine the volunteeristic spirit of those already taking part;
2. Forcing people to work may result in very unhappy people with an attitude wholly unsuited to the role they are meant to play in voluntary activity;
3. Cutting off welfare payments undermines the basic principle that in a democracy, we are all participants in decision-making and we all share the resources of our country;
4. Cutting off welfare payments will lead to people suffering poverty, deprivation and a host of other problems - which could lead to increased mental ill health, addiction, crime, suicide, etc;
5. It is likely that certain people will be badly affected, such are people who are already long-term unemployed due to mental health problems, including addiction. Neither forcing them to work, nor cutting off their dole, is in any way an intelligent or humane response. Dealing with our failing mental health system would be preferable. Offering people the option of work could be very constructive, but not as part of a work-or-else approach;
6. These schemes are likely to rely on existing community and voluntary bodies providing supervision, training, etc in exchange for labour. This could overwhealm some of these bodies;
7. There are other costs to be considered, such as insurance, transportation, etc.

To pick up on the final point, how will the additional costs be paid for? One of the reasons why many Western governments do not provide large schemes offering people useful work to do is because the operation of these schemes is likely to be significantly more expensive than simply giving people a basic umemployment payment. This is not to say that the longer-term benefits, in terms of upskilling, keeping people active, useful work achieved, etc. might not outweigh these costs, but it helps explain why the idea of 'workfare' hasn't be much developed.

I dislike the negative tone that so often surrounds the discussion about offering people on welfare some form of community work. It feeds into tired and disingenous arguments about forcing 'lazy scroungers' to work. But people receiving JA are not lazy scroungers. The vast majority of people who are unemployed want to work. The problem is economic. There are no jobs.

In economic terms, the supply of jobs is less than the demand for them. Hence, there is unemployment. In fact, in a well-functioning economy, there will always be an element of unemployment as people move between jobs. And moving between jobs is part of the vaunted flexibility we are supposed to be encouraging in our labour force.

The supply of jobs is low because (a) there is a lack of credit for businesses and (b) there is a lack of demand in the economy. The Government has done little to solve the credit problem, and has crushed demand with a will, by lowering welfare payments, cutting public pay and encouraging the private sector to cut pay. If people have less money, they spend less, so there are less jobs.

If the Government wants to fund thousands of worthwhile jobs in the community, then this should be a positive step towards addressing the unemployment crisis. Any such scheme would probably be over-subscribed by willing volunteers.

We don't need to cast a shadow over this by making community work manditory. This feeds into negative stereotypes about people claiming welfare payments and encourages sadistic diatribe about forcing 'lazy' people to work. That way lies the Gulag.

They shoot horses don't they?

James Wickham: One of the predictable consequences of high unemployment is the growth of hucksterism. As unemployment rises, so too do the voices that claim that you can get a job if you only try. ‘On your bike’ as Britain’s Lord Tebbit famously said. The unemployed are enjoined to become entrepreneurial, to invent new products, to sell new services, to sell themselves. The solution is to write a better CV, to hassle, to get motivated. Read for example the story “Jobseekers’ bootcamp all about the right attitude” in the Irish Times 17 August 2010.

Of course the reality is that what works for individuals doesn’t work for society as a whole. Improving CV writing just re-shuffles the job queues; it doesn’t create jobs. Dare we mention the word ideology? Don’t events like this ‘bootcamp’ reduce the pressure for realistic job creation policies? And what about realistic social policies to help people deal with life without paid work?

GDP Growth and Government Policy

Nat O'Connor: The Minister for Finance is celebrating GDP growth of 2.7 per cent in the first quarter of 2010 as evidence of the success of Government's policies (Irish Times). This is based on the latest CSO Quarterly National Accounts figures (30 June 2010). The Minister is reported to have said "our plan is working" and "we must stick to it" (RTÉ). However, there is a lot of evidence that this growth is happening despite, not because of Government policy. And in fact, the more common comparison made between GDP with the same quarter of the previous year shows that GDP has gone down by 0.7 per cent (which is the headline statistic used by the CSO in 2008 and 2009).

In the CSO's Quarterly National Accounts (QNA), when you compare GDP in the first quarters of 2009 and 2010, the 2010 figure is €300 million lower (a decrease of 0.7 per cent year-on-year). In fairness to the CSO, the comparison of Q1 2010 with Q4 2009 is relevant to the question of whether Ireland has technically come out of recession (i.e. quarter-on-quarter growth for two quarters in a row) and it is used internationally. But we should be cautious about switching too much attention away from the continuing (albeit slowing) year-on-year decline of GDP. Likewise, more attention should be paid to the significant fall in GNP of 4.2 per cent, compared to Q1 2009.

But to return to the composition of GDP? Where is 'growth' happening? Let's look at Table 5 in the QNA, which compares Q1 2010 with Q4 2009 (which is where the 2.7 per cent growth figures arises):
Personal consumption is down: -1.1 per cent.
Government current expenditure is down: -0.9 per cent.
Capital formation is down: -11.0 per cent.
Exports are up: 9.0 per cent.
Imports are also up: 3.6 per cent.

We can match up certain Government policies with some of these factors. Personal consumption is down because of jobs losses, pay cuts and increased taxes; i.e. people have less money to spend and have less confidence in the economy. This may also increase imports, as people turn to cheaper imported goods. Imports were boosted by the Government's car scrappage scheme, which must have led to leakage, since we don't make cars in Ireland (in fact, we imported €422 million in road vehicles in Q1 2010 compared to €325 million in Q1 2009).

Government current expenditure is down through cuts. Some of this may be inevitable given the crisis in tax revenue. However, the massive decrease in capital formation (i.e. investment in the physical stuff like roads, factories, etc. that will lead to future economic development) can be parked at the Government's door through the massive cutting of capital investment programmes, whereas the social partners are united in calling for state-led investment (e.g. IBEC, ICTU and others).

But what about exports?

The Government's claim is that wage cuts are making Ireland's exports more competitive. This has already be dealt with comprehensively on this blog here, here and here. At any rate, Government policy can only take credit for cutting public sector wages, which lowered consumption and raised personal debt relative to incomes, while having negligible impact on exports.

Ireland's exports in Q1 2010 are composed of €20.4 billion in merchandise and €16.6 billion in services (CSO, Balance of International Payments).

The CSO's External Trade figures gives a breakdown of Ireland's trade for Q1 2010 compared to Q1 2009. (We don't have the same detailed data available for just Q1 2010 v Q4 2009, so we are again looking at the year-on-year picture).

The top four account for 90% of exported commodities:
- Chemicals and related products (€12.2 billion, 59% of exported commodities) down over €450 million
- Machinery and transport equipment (€2.6 billion, 12%) down €1,200 million (includes nearly €800 less exports of office machines and computers)
- Misc manufactured articles (€2.4 billion, 12%) up €120 million
- Food and live animals (€1.5 billion, 7%) up €31 million

There is no clear evidence here to suggest the Government's plan is "working". Exports are still down by 5 per cent (over €1.1 billion) year-on-year. Deflation may have benefitted miscellaneous manufacturing, yet even within this sector only four out of nine sub-headings are up (Table 3, Section 8).

As for service exports, the CSO figures show that the biggest ones are: computer services (€6.3 billion), business services (€5.1 billion), insurance (€2.1 billion) and financial services (€1.4 billion). About a third of all service exports are IFSC. Overall, services are up €1.1 billion compared to Q1 2009. Computer services seems to be the most important sector here as we have relatively low imports, whereas we imported €2 billion more in business services than we exported.

What exactly is the Government's "plan" to boost services? Many of the big players in computer services, like Google and Microsoft, are concerned with quality infrastructure and quality of life to attract high-end staff. Wage deflation does not help them.

For example, the American Chamber of Commerce in Ireland stated in its Pre-Budget Submission that "Ireland continues to face increasing competition from lower cost economies for FDI. However, its sustained commitment to investment in knowledge and physical infrastructure is successfully transforming our economic aspiration to develop a credible base of industry that is underpinned by research excellence and innovation, and is supported by world class infrastructure."

Similarly in its May 2010 statement: "the decision by EA Games [to locate in Galway] is a testament to the educated and skilled workforce in Ireland's western region. Galway offers a readily available pool of talent, global market access and vastly improved physical infrastructure. EA's arrival will act as a boost to the local economy".
Intel's general manager in Ireland has also spoken about the need for digital infrastructure "right around the country" and Government policy that supports "a strong base of well-educated young people".

Undoubtedly, Ireland's tax policies are attractive to some of our major exporters. But where is the Government's "sustained commitment to investment in knowledge and physical infrastructure"?  The Government's current policy of disinvestment in infrastructure and public services, without any plan for how we will develop them in the medium-term, is a major disincentive to knowledge-based companies, like computer services.

Where is Ireland's "educated and skilled workforce"? They are emigrating, if they are among those people identified by the OECD when it stated that "Ireland's recovery will not be vigorous enough to re-employ the 174,000 people who have lost their jobs." (RTÉ)

In the high emigration era of the 1980s, the Minister for Finance's late father, then Minister for Foreign Affairs, remarked that "We can't all live on a small island". There can be no doubt that emigration is still being used as some kind of 'safety valve' for the sake of GDP growth. As people emigrate, this lessens the pressure on social welfare payments, plus it artificially lowers the number of people counted on the live register, despite that fact that it is at its highest level ever at 444,900 in June (277,400 unemployed, the remainder working part-time).

Yet there is plenty of room on the island for a lot more people to live in prosperity. Ireland has a total population of 4.3 million, living on c. 70,000 sq km (island total: 6.1 million people on 85,000 sq km). For comparison, the island of Sri Lanka, in the Indian Ocean, has a population of 21.5 million on less than 66,000 sq km.

In order to develop a social and economic infrastructure that supports more people to live in Ireland, this requires a strategy to build up the physical and knowledge infrastructure in a way that will boost sustainable jobs. However, the Government's plan offers nothing to the tens of thousands of our best-educated young people who are likely to emigrate, despite the preference of many to build their lives here. The Government could have stimulated growth and softened the landing for some people working in construction by a targetted investment in vital infrastructure, which in turn would have incentivised private investment in Ireland, but they chose not to.

All governments need to face the fact that many factors in the economy are outside of their control, including a number of the reasons for Ireland's economic growth. Our current policy-makers have to go further and recognise that their "plan" is part of the problem, not the solution.

Tackling unemployment is the central challenge

Tom O'Connor: In a paper delivered last month to the Labour Party economic conference in Cork, I argued that any return to economic growth would not have any significant effect on reducing unemployment. I also argued that it was unemployment which caused nearly three quarters of the exchequer deficit which net of Anglo recapitalisation amounted to 21 billion at the end of 2010.

In order to increase employment and reduce unemployment starting almost immediately and further reduce unemployment in the years to come, I suggest(ed) three stimulus packages costing €5.23 billion between them.

The first involves the government injecting money directly into viable new high- knowledge industries as put forward by the Expert Strategy Group report Ahead of the Curve (2006). These are in biomedical devices, sustainable energy, food ingredients and high quality food products, telematics, and Information and communications technology. There are currently 250 research clusters which have spent almost €3 billion in government funding for research under Science Foundation Ireland, and very few are being mainstreamed. The best of these should be mainstreamed and vetted in advance. They must start very big to compete with foreign competitors, and should be looking to employ several hundred people. As such, each should receive tens of millions in state investment through the quadrupling of the budget of Enterprise Ireland and the establishment of a state development bank. These indigenous exporting companies would not repatriate profits, and there would be very little leakage of resources out of the economy.

Package I

• Government needs to invest at least €5 billion in stimulus 2010 + 2011
• Companies should be vetted and viable ones aided within 3 months
• Government should give 50% in grants in return for shares to be redeemed over 10 years and 50% in loans
• High quality retraining should be provided in parallel through state training agencies to match the relevant skills needs
• Re-training allowance of €330
• Priority should be given to indigenous enterprises
• Should include viable and strong state-owned enterprises which would pay dividends to the state
• A state Development Bank should be established, working alongside higher budgets for Enterprise Ireland

Package II

The second arm of the stimulus package involves investment in social, health and educational infrastructure:

• Schools building programmes (extra €400 million)
• Revolutionising mental health services as provided for in Vision for Change (2006) = €750 million.
• Publicly provided geriatric facilities (extra €300 million)

The third stimulus package exploits the low cost of housing for the government, and proposes having the banks fund €100,000 per housing unit enabling the Government to purchase 50,000 low-cost affordable homes to eliminate the housing waiting list. The government would initially provide over €5 billion, and when the saving in rent allowance and the recouping of the cost of €35,000 in mortgage proceeds by the banks is taken into consideration, the net cost to the state would be about €1.5 billion. This would equate to the cost of the state holding on to 15,000 of the 50,000 housing units to increase the local authority housing stock for those who would not be in a position to pay €800 a month to afford the mortgage of €100,000 in respect of the 35,000 affordable housing units provided by the state and mortgaged with the banks. Given that the government is injecting an extra €9 billion at least into the two big banks, with the government now becoming the biggest shareholder, one quid pro quo would be for the banks to grant 35,000 mortgages to those on the housing waiting lists. The data is as follows:

Package III

• Government purchases 50,000 housing units for 5 billion @100k each
• 35,000 sold to those on waiting lists at 100k each.
• 15,000 rented by local authority
• Banks finance the purchase of 35,000:
• Govt gets back €3.5 billion, and saves € 270 mill on rent allowance. Net cost = €1.23 billion

Discuss.

There are smarter ways to economic recovery

Stephen Kinsella: The smart economy is a nice idea, perhaps even a good idea. But like most nice ideas, when exposed to reality, the smart economy just breaks down. The smart economy as a concept takes no notice of the detail: who is looking for what type of job right now, and how long will it take those people to train for new ones? When confronted by the facts, we have to augment our industrial development strategy if we want to protect the real, on-the-ground, economy.


A smart economy is supposed to drive economic growth by bringing in or creating 'high value added' jobs for well-qualified people, who, because these jobs pay really well, make and spend lots of money locally, and pay lots of taxes, thus boosting the local and national economy. The smart economy idea has merit, but if we created the smart economy in full, no-holds-barred, tomorrow, if the smart economy succeeded beyond our policy makers' wildest dreams, it wouldn't help most of the people in the Mid West region who are unemployed for 3-5 years. This is because the idea of the smart economy is at variance with the facts of the type of unemployment in the Mid West right now.

The fact of the matter is that most of those newly unemployed come from construction and services, and will require significant and costly retraining, which may take years, to make them elligible for 'smart economy' jobs, even if those jobs were plentiful. The reserve of labour the Mid-West has right now, to be clear, is best helped by intensive retraining and retooling of a portion of the workforce, while providing state-stimulated projects to help workers and the local economy while retraining. Three infrastructural projects with long-run benefits to the region that are shovel-ready are the Links project, the expansion of Foynes port, and the Regeneration project, not to mention the 20+ recommendations of the Mid West Taskforce. Implementing large capital projects concurrent with up skilling, retraining, and business development programmes takes care of the time lags involved in training workers, boosts the local economy, and does not overly harm the debt: GDP ratio of a country running headlong into +100% debt: GDP territory in any case. The question to answer when thinking of borrowing for these types of projects is: does the long term social benefit exceed the long term social cost? If the benefits are a halt or reduction in the increase in unemployment, the creation of new capital and a reduction in social maladies like poor health and lawlessness, combined with an increase in local consumption and investment, coupled with the retraining of a large portion of the unemployed workforce, then, set against the cost of borrowing a fraction of the cost of NAMA's €54 billion to achieve those ends is, for me, worth it. I'd welcome any costings on such projects--if the long term benefits turn out to be less than the costs, I'll shut up.

You might ask why the MidWest is different, why it should receive special treatment ahead of other regions with similar, if not worse, problems. The answer is historical. The MidWest has underperformed economically relative to the rest of Ireland throughout the boom years. There are many reasons for the region's underperformance, but the fact remains. To focus exclusively on creating high-value added jobs is to disenfranchise tens of thousands of unemployed persons in the Mid West region, because they just won't get those jobs. The smart economy, rather than helping the newly unemployed, has hurt them, by diverting funds which could have helped them to other uses.

I'm not arguing for a return to the days of the construction boom: those days are gone, and good riddance to them. I'm asking that we look squarely at the data first, talk to people on the ground, and ask them what they need. Couple that to local and international expertise, and get something credible, accountable, and practical started inside of 6 weeks. Not 18 months. Not 24 months. Certainly not 3-5 years. Our unemployed can't wait that long.

League tables and losing the plot

This post was originally written on April 21st in response to an article in the Sunday Business Post. We are re-posting it following last night's Prime Time Investigates programme on social welfare fraud.
Peter Connell: As the Irish economy has spiralled downwards over the past six months, those with an interest in attempting to understand what’s happening and evaluating the solutions being proposed are, at least, being exposed to an increasing informative public discourse. You may not always agree with what economists write as opinion pieces in the national media, over at Irish Economy, here at PE or elsewhere in the blogosphere but, generally, you’re presented with reasoned, well informed arguments that represent genuine attempts to enlighten.

Instinctively when you prepare to read an opinion piece on the solutions to the country’s economic ills by Dr. Ed Walsh, ex-president of the University of Limerick (UL), you know it will be written from a particular ideological perspective. No problem there. We all have ideological perspectives, whether acknowledged or not. Dr. Walsh, since being appointed the first president of UL (then the National Institute for Higher Education) in 1970, has almost four decades of experience of public policy formation in Ireland and has held numerous influential positions in areas key to the country’s economic development including chairperson of the Irish Council for Science Technology and Innovation that advises the government on science policy. So, you could reasonably expect to find some good ideas in Dr. Walsh’s piece in the Sunday’s Business Post entitled ‘Back to when we were winners’.

According to Dr. Walsh it’s all about competitiveness. We were winners in 2000 when we were the fourth most competitive country in the world. Then we ‘lost the plot’. In 2007-8 we were back in 22nd place. And why are we down in 22nd place? The World Economic Forum said the poor quality of our infrastructure was the most problematic factor for those wanting to do business in Ireland. So, does Dr. Walsh identify some innovative ways in which we can fund investment in our infrastructure? Or perhaps he has some insights into how we might convert the significant state investment in fourth level education into innovative, hi-tech enterprises? The strange thing is he doesn’t mention the state of our infrastructure at all and, in this article at least, has nothing to say about the role that technology and innovation might play in growing jobs and creating wealth, an area in which he has considerable expertise. Instead, his piece identifies our overly generous welfare system, high wages in the public sector and failure to tax those on low incomes. Into the mix he adds rigid labour laws, the undue influence of teachers unions in curriculum development and the lack of reform in local and national governance as being the cause of our problems. That’s quite a list. And he backs his arguments up with some figures.

First of all, he suggests that we reduce the size of the public sector workforce by 85,600 to get us back to the level in 2000. Even at the crudest level we can say that, thankfully, we’ve about half a million more people in the country than we had in 2000. That’s about 70,000 more children of school-going age who require teachers in schools that have some of the highest class sizes in the OECD, and it’s up to 40,000 extra older people aged 70 and over who depend on public services more than other sections of the population. In 2000 our health service was just beginning to receive the investment it required to repair the damage done by cuts in the late 1980s. Since then an additional 9,000 nurses have been recruited, but I guess they’re surplus to requirements if we’re to ‘get back to when we were winners’. Certainly, there’s scope to reform the public sector, but not with a demolition ball.

Next up, public sector wages. Dr. Walsh argues that ‘benchmarking against other EU countries provides the framework within which Irish public sector salaries can be brought into line’. He goes on to claim that Irish teachers are paid 37% more than their British counterparts and 26% more than those in Germany. This claim appears to be a quote from Danny McCoy of IBEC writing in the Irish Independent in November 2007. The data is from 2004. But OECD data from 2005 shows something quite different (see pages 384-387). While Irish teacher’s salaries were towards the top of the table internationally, they were lower than in Germany, somewhat higher than in England, but lower than in Scotland. The OECD report also shows teacher’s salaries as a ratio of GDP per capita as a way of assessing the relative value of teacher’s salaries across countries. A secondary school teacher in Ireland with 15 years experience earns a salary equal to 1.2 times GDP per capita. This places the Irish teacher at 14th in the international league table of 30 countries reviewed by the OECD.

Next, Dr. Walsh, pleading the case of high earners, quotes the discredited statistic that the top 6.5% of earners contribute half of all income tax collected, and that 38% of the workforce paid no income tax at all. Colm Keena of the Irish Times, in an article I quoted in an earlier post, presents an alternative perspective on the data on which these statistics are based focusing on individual earners rather than revenue cases. If Dr. Walsh cares to examine the data, he will find that perhaps the most striking fact is that just 9,129 individuals earned €6.7 billion in income, while the lowest 1.2 million earners had an income of €13.3 billion between them.

And now we come to welfare fraud. According to Dr. Walsh ‘welfare fraud and welfare tourism are now a major burden on taxpayers’. And the evidence? Apparently, there are 1,044 welfare claimants at Ballyconnell Welfare Office and the town only has a population of 747 according to the 2006 census. This, he remarks, is an alarming statistic. The source of his information on the number of claimants is a Department of Social Welfare and Community Affairs press release issued by Mary Hanafin. And the implicit aim of the press release is to lay the blame for the doubling of unemployment rates in the border counties on fraudulent claimants.

Unfortunately the situation is worse than Dr. Walsh thinks. The most recent figure for March 2009 is 1,161. This information is readily available from the CSO website, which is generally a more reliable source of information than ministerial press releases. Anyone who has ever dealt with a Social Welfare Office would also know that they serve wide hinterlands, not just small towns. Preliminary research suggests that the Ballyconnell office serves a population of about 14,000. It’s one of two covering the whole of Co. Cavan. Unfortunately there are over 6,500 people now unemployed in the county, many of them young local men who worked in the construction industry.

Dr. Walsh suggests that this welfare tourism is down to our over-generous welfare payments. I suggest he reads Michael Taft’s excellent piece on this topic over at Notes From the Front. Referring to another league table, he shows that we’re in 13th position out of EU 15 when it comes to the level of unemployment benefit paid to a single claimant. Dr. Walsh chooses to compare Irish rates with wages in Lithuania and Romania.

So, unfortunately I wasted seven or eight minutes reading Dr. Walsh’s piece in Sunday’s Business Post. It’s disappointing that one of our brightest opinion formers didn’t do his homework, but presented an argument based on press releases and snippets of information chosen to bolster a particularly extreme view of where we’re at and how we can solve our problems.

In any case I’m not convinced that we should set our sights exclusively on climbing the competitiveness league table. We’re now 22nd. Above us, in 20th place, is Iceland.