William Slattery Imparts Wisdom to the Nation. The Recession Diaries - September 27th

William Slattery of the financial services company State Street, and a member of the McCarthy Committee, has offered some advice to the nation in its time of need. With unemployment climbing ever higher, with 250,000 jobs already shed since the start of the recession, he proposes that the largest employer in the state slash a further 30,000 jobs. Wow.

 Of all the fiscal measures that could be taken by the Government – as measured by the ESRI (income tax, property tax, carbon tax, public sector wage cuts, capital spending cuts) - cutting public sector employment is the worst. Using the ESRI findings we can measure what we might expect from William Slattery’s proposal:

All those numbers going south – what does it mean?

William Slattery wants to collapse the domestic economy by over €3 billion - prolonging the recession for at least another year and possible two.

William Slattery wants to put more than 40,000 people on the dole queues – and it could be higher if we can’t kick more people out of the country through emigration.

William Slattery wants to drive more businesses out of business by cutting consumer spending up to €1.7 billion.

But wait a minute – William says we’ll save €2 billion. Is that true? Not even close. The annual deficit will fall by -0.2 of GDP – or about €330 million. Why so little? Because after you factor in the rise in unemployment costs, the loss in tax revenue (income tax, PRSI, VAT from reduced spending), lower businesses taxes from the loss of turnover – the actual savings is peanuts.

No doubt William hasn’t thought this through. You cut your total national income by over €3 billion to get a savings of €300 million – if a CEO of a multi-national firm tried to do that with their business, they’d be clearing their desk before noon.

It doesn’t bother me that William Slattery makes such an ill-informed proposal. After all, there are people who deny climate change, evolution, and the moon landing; heck, there are people who think the radio makes noise because there are tiny little people inside it. The world is a wide world – there will always be a William Slattery around to amuse and irritate (Eamon Blaney proposes that 100,000 public sector workers be laid off but he was writing in the Sunday Independent, a publication that only exists to facilitate one of the best regular weekly on-line competitions over at Cedar Lounge Revolution).

No, what would bother me is if people mistook this proposal as a serious contribution based on an informed understanding of how the real world works.

This is a proposal written in crayon on the back of a discarded snickers wrapper in the middle of a kindergarten playground.

Pity the nation that takes its William Slatterys seriously.

Comments

[Aidan R]

Spot on Michael. What fascinated me most about this mad-hatter proposal was RTE making it a serious news headline.

[Radler]

Not that I support Stattery's rant or anything ... but in your calculation, are you assuming that all 30,000 former public servants would just go on the dole? Surely some of them would find jobs (not necessarily displacing others) or start their own businesses?

[Michael Taft]

Radler - just to point out, this is not my calculation as such. I'm only working on the basis of the ESRI's estimate that a €1 billion cut in public sector employment will cause a decline in employment of 1.2 percent of the labour force. The impact is not just on the basis of lost public sector jobs. Yes, some of those losing their jobs in the public sector may find alternative employment. But don't forget, the lost consumer spending from those who don't find a job will cause private sector employment reductions (reduction in demand will impact on businesses reliant on domestic demand).

In the UK, the Treasury estimated that the scale of the Tory-Dem cuts would cause not only 600,000 public sector job losses but 600,000 private sector as well.

Back in Ireland, we can assess the extent of job losses by reference to a cut that doesn't impact on public sector numbers - namely, public sector wage cuts. Here, we find that public sector wage cuts (equivalent to a reduction of €1 billion in the Exchequer pay bill) will cause 1,900 job losses in the first year, rising to 3,800 jobs lost by the third year. Given the totality of public sector wage cuts (pension levy, the 2010 budget cut), we should expect over 9,000 job losses from this measure alone in a couple of years. All because of reduced demand.

Aidan - you shouldn't be too surprised. Taken as a whole, the debate over the economy has the character of a long-tea party with the March Hare and Doormouse also in attendance.

[Alex Jones]

Your assumptions and figures are completely inaccurate and Mr Slattery's proposal is anything but ill-informed.

[Michael Taft]

Thanks for that, Alex. Would you care to elaborate with your own 'figures'?

[Mack]

Michael - he's talking about a voluntary redundancy program. The people taking that likely already have other plans - whether it be a career change, parenting / family time, start a new business, find another job, emigrate or travel.

The company I work for did a huge round (relative to size of Irish workforce) of voluntary redunancies last year - I haven't heard of any regrets yet. Most people who want jobs have got them, others have started businesses (or following some other of the options ascribed above).

In certain industries there were would appear to be a shortage of knowledge workers.. I think one of the problems we have now is a skills mismatch. We're never going to retrain 100k construction workers to work as software engineers - but Dublin based software companies are recruiting overseas because they can't find enough engineers here..

FWIW, one of my friends is a union rep in the northern PS, itching for a vol. redunacy program there.

[Michael Taft]

Thanks for that Mack. The ESRI simulation is based on a reduction of x amount of employees on the public sector payroll. There is no assignment as to reason: retirement, early retirement, emigration, death, illness, forced redundancy, leaving for another job in the private sector, work-sharing, contract cancellation, contrat non-renewal, etc. If you have any data for the breakdown of the recent reduction in the public sector workforce, it would be helpful to construct, at least, reasons for the reduction.

[Mack]

No data Michael, but I imagine it's important in terms of whether the cost is x+y (benefits), or x-y (where y is the salary from a new job or business income / redundo investment or a reduction in the burden on services). And because they'd be voluntary I imagine the workers would be happier (and probably more productive in their new roles).

You'd probably also get productivity boost from the remaining workers too - as they'd probably be expected to produce the same output with less workers (which would be an argument against salary cuts).

Normally you'd get a payout to facilitate the change, so I think it's a fundamentally different event to natural attrition. If you get 60 or 70 weeks pay tax free you can afford to go back to college or take a risk starting a business if you want - potentially leading to a net gain for society.

[Mack]

Other potential positives that mightn't be captured in models such as the ESRI, at the individual level include the ability to pay down debt. If the voluntary redundancies are well telegraphed some workers may be able to line up alternative employment in advance and use any pay-out to reduce their jumbo mortgage.

As long as none of this is forced, I don't know that it's neccessarily a bad thing. Maybe they could trial it on a small scale first?