It's Employment, Stupid. The Recession Diaries - May 10th

If, as Keynes said,

‘If you look after unemployment, the budget will look after itself’

then no wonder the economy remains mired in an economic and fiscal crisis. Fianna Fail has not looked after unemployment; the budget has not looked after itself; no one is looking after the economy.

How does Irish employment fare in comparison with other EU countries over the three years of the recession (2008-2010)? The recent EU Commission's recent economic forecast provides some depressing numbers.

The collapse in employment in Ireland has been little short of staggering. In the entire EU-27, Irish employment has fallen, in percentage terms, more than any other country save for Latvia. It has fallen at five times the rate of the Eurozone.

What would have happened if Irish employment fell at the same rate as the Eurozone? There would be over 200,000 more people at work. You don’t need a calculator to assess the impact that would have on the budget:

• More income tax/PRSI revenue
• Less Government spending on unemployment and related costs
• Higher consumer spending which equals more VAT revenue
• Because of more consumer spending, more businesses still in business – paying business taxes

In other words, the deficit would be consdierably lower.

Of course, even without the global downturn, Ireland would have had a property bust, resulting in considerable job losses. The growth in construction employment was ultimately unsustainable – rising from 9.7 percent of total employment in 2000, to 13.7 percent in 2007.

Factoring this in, a fall in employment consistent with the Eurozone average (including the fall-out in construction from the property bust) would have been a little over 6 percent – still less than half of what we have experienced.

Were other Eurozone countries just lucky to escape a dramatic fall in employment? No, it was policy; a policy that understood that maintaining employment is key to surviving a recession, key to maintaining fiscal integrity - key to shortening the duration, and limiting the damage, of a recession. That’s why other countries took steps to increase public investment, launch job-retention schemes, maintain demand (increase the minimum wage, cut VAT, etc.). Fianna Fail didn’t take employment seriously. Now we’re paying the price.

What can we look forward to? The Government is bullish. In 2011, they are projecting a net increase in employment of 20,000. What do some other forecasters say?

• The ESRI is projecting no net increase.
• The EU Commission predicts employment will grow by approximately 7,000 (but that is on a no-change fiscal policy basis; measures in the 2011 Budget that dampen demand could result in a downward revision).
• Ernst & Young predicts that unemployment will remain in double-digits up to 2014 and probably beyond.

If the Government is wrong (and Batt O’Keefe’s detached-from-planet-earth aspirations don’t materialise), then employment will stagnate until at least 2012. This will result in sluggish tax revenue, continuing high levels of unemployment expenditure, with all the fall-out on the deficit and debt levels that this entails.

All this because the Government didn’t follow the dictum from someone who know a little bit about depressions and how to get out of them.

Comments

[James Conran]

Hi Michael.

Just to be clear, the graph showing decline in employment measures absolute figures, i.e. in Ireland's case a fall from roughly 2.1 million employed to roughly 1.8 million?

I wonder how much of this is emigration, i.e. what the fall in the employment/working age population ratio has been.

[Michael Taft]

James - the graph shows employment loss. The QNHS can help in answering your specific questions. Using the latest data over the last two years (Q4 2007 - Q4 2009), employment fell by 254,000 (seasonally adjusted). The number of unemployed rose by 174,000. Which leaves a difference of 80,000. Some of this difference is the falling out of the active labour force (e.g. return to education, retrun to home-work). As well, we have to factor in the marginally attached such as discouraged workers (available to work but not actively seeking work since they don't believe there is jobs). This latter category increased by 15,100.

As to working out emigration figures, this is difficult as we don't have up-to-date figures and they are only compiled on an annual basis. The ESRI projects that net emigration was 8,000 last, rising to 60,000 this year and 40,000 next year - a total of 108,000 over the three years. However, these are just projections.

Hope this has been of some help. Get back to me if I can clarify further.

[James Conran]

Thanks for that, Michael, very helpful.