Wednesday, 27 May 2015

Good News on Jobs

Paul Sweeney: There is good news on the jobs front. But we should never have had such a collapse in the economy and jobs. The job of economists and policymakers should be to make economic performance boring.

Employment should match population changes, economic development should meet our material and social needs and provide equitable taxation to fund great public services.

There should never be the rapid rises and falls in growth, in unemployment and in taxation and consequently in public services.

The Celtic Tiger was real on every economic criterion and Ireland finally caught up with the rest of Europe, surpassing many states. Then from around 1999 ultra-liberal policies were implemented by governments, those in power and in business. They almost destroyed our economic and social success. This should never happen again. (But it probably will….)

Good News on the Jobs Front
The fall in unemployment to below 10% (9.9%) in quarter 1 of 2015 is good news. Indeed an analysis of the data gives a lot of hope. Employment and unemployment is a much more important indicator of economic performance than say growth rates.

Of course, the rate of unemployment should never have been allowed to rise to 15%. Especially after the great success of the 1990s.

Daily during the Banking Inquiry we are hearing the former “Masters of the Universe” tell us that they were only doing their jobs or it was someone else’s fault and we all followed Group Think – but this Group Think is never called by its real name – neo-liberalism.

Unemployment peaked at 15% in December 2011 and is down from 12.1% a year ago to 9.9% now. And it looks like it will continue to fall. However, the recovery is slower than the dramatic collapse in jobs in from 2008 as the graph shows. But it was some Crash.

Peaks and Troughs
Employment peaked in Q3 2007 at 2,170,000 and stands at 1,930,000 at beginning 2015. It fell to its lowest point at 1,825,000 in Q1, 2012. There were net job losses of 345,000 over that almost 5 year period. Thus the trend has been reversed and a total of 105,000 net new jobs have been created in the past three years.

Sectors, Long-term, Gender and more
Construction employment rose by 19,600 on the year to 121,800, up by 19%. However it is down 55.5% from peak at 2007 level, but that was in a bubble and wont be achieved again. Employment in services grew by 0.9% and in industry by 4.0% in the year. The surprise was the fall of over 6,400 in professional, scientific and technical and jobs in the year.

Male unemployment decreased by 27,800 (-17.0%) to 135,700 over the year to Q1 2015, while female unemployment decreased by 17,500 (-18.5%) to 77,100 over the same period.

The unemployment rate for 15-24 year olds (youth unemployment rate) decreased from 25.3% to 21.5% over the year to Q1 2015. This is still far too high.

Full-time employment rose by 52,100 on the year, or by 3.6%, while part-time work fell by 10,800, or by 2.4%. Full time employment has outpaced the growth in part-time work since the end of 2012, which is a good trend.

It is encouraging that long-term the unemployment rate continued to fall to 5.9% in Q1 2015, down from 7.3% in Q1 2014.

Another indicator is “potential labor supply” ie those unemployed plus those who would like to work but cannot for various reasons and this has fallen from 24.7% in Q2, 2013 to 18.7% at beginning of this year.

Labour market trends indicate that that there is now a definite recovery in the Irish jobs market.

Regional Trends
Most regions are seeing improvement. Dublin and the east is doing very well, the west is not doing so well and the south west and mid west are stagnant compared to two years ago ie Q1,2013.

Demographic and Participation Effects
The fall in immigration and its reversal and the size of the working age population has impacted on unemployment. Up to the start of 2008 this demographic effect had been adding 65,000 or more to the labour force on an annual basis, primarily driven by net inward migration.

With the decline in inward migration the positive demographic effect started to fall in the second half of 2007 and continued to decline throughout 2008 and 2009 before becoming negative in Q4 2009. In Q1 2015 this negative demographic effect contributed 7,700 to the overall decline in the labour force.

This negative demographic effect is all concentrated in the 20-24 and 25-34 age groups. In short, the young have been the hardest hit by the man-made economic collapse.

The relatively low decrease in the participation rate (%age of persons in labourforce aged over 15) was recorded overall (falling by 0.3 percentage points over the year to 59.4%) there was a range of increases and decreases recorded across age groups. The net effect of these competing increases and decreases was a low positive participation rate effect of 3,700.

Our participation rates were increasing but the collapse hit them hard. Ireland’s rate at end 2014 was 59.8% compared to 58.1 in EU15. However, our employment rate (%age of persons of working age ie 15-64) was 62.6% compared to the EU15 of 65.9%, though this is up 1.2% in the year – moving in the right direction. High employment rates are important to building a prosperous society.

What is the Government doing?

The Government’s “Jobs Plan” is ambitious and is being achieved. Indeed when it was first announced in early 2012, in the middle of the collapse, it seemed over-ambitious and unachievable. That it is being exceeded is good news.

The great importance of jobs was recognised in this Plan and that was excellent. In the face of the collapse in jobs at that time in early 2012, it seemed like the government was taking a big risk. Unemployment had just peaked at 15% in December 2011. It had been down at 4.2 to 4.5% in 2005 to 2007.

With the Crash of 2008, it began that year at 4.9 but ended at 8.6% and rose to peak at 15% at end 2011. Its target was to create 100,000 net new jobs by 2016 and by end of last year 80,000 net new jobs had been created. Its goal for this year is 40,000 more jobs. It looks like the 100,000 net new jobs has been reached. A further goal to bring employment to 2.1 million by 2018 – 2 years earlier than the Jobs Plan original target – effectively restoring all jobs lost during the economic crisis – now looks likely.

The government’s decision to re-balance the fiscal adjustment to less cuts and more taxation has helped but, in my view, this re-balance should have gone much further with less cuts and more directed taxes, for example from the highly profitable corporate sector, and the “adjustment” should have been slower in reaching the 3% target, despite the Troika.

What more can be done?
The reduction in unemployment - down from 15% in December 2011 to 9.9 per cent at Q1, 2015 is a good achievement. However, on current trends it would be 2019 before we get back to 4.5% which might be called full employment. That is achievable but the reduction in what is still a high level of unemployment could and should be speeded up.

A public investment programme would greatly assist in addressing this with the emphasis on a radical programme of directly publicly funded social housing. It is needed and it is labour and skill intensive. Interest rates are at historically low rates and Ireland’s investment rate has been at the lowest in the EU28 states lower than even Greece.

There has been some welcome pick up in investment on a low base and it is still too low. Investment in public transport, like more tram systems in major conurbations, will be needed and now is the time start building them.

Secondly the government took the foot off the (amended) austerity pedal last year and it could do so again. It worked for employment then and can do so again. Personal consumption a key driver in the recovery only rose by 1% last year. It had collapsed by 25% after the Crash.

Thirdly, domestic demand collapsed with the crisis and the best way to re-boot it is with wage-led growth. The public sector pay talks indicate movement there after the cuts and many private firms are making large profits and can well afford to pay their workers more.

In conclusion, the achievement in getting the rate of unemployment down to under the psychological double digit figure of 10% is most welcome. The Action Plan on Jobs was radical when launched by government in bad times in early 2012. Yet it is being exceeded.

This is good news but we could do much more to create jobs especially when so many jobs are needed.

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