Sometimes failure really is success in progress. The headline unemployment is now 9.8%, more than 212 thousand people. On the face of it, a total policy failure, and nothing to be happy about, apart from the fact that that number is dropping from a high of over 15%, and has been dropping since mid 2011. Over 1.9 people are employed in Ireland today, getting us back to 2009 levels. There are large increases in full time employment and decreases in part-time employment. Of all the new jobs, 19,000 of them are in construction. Long-term unemployment is falling like a stone.
Is it fair to call the current unemployment rate a failure of policy? Any unemployment rate above three or four per cent is probably too high, but policies focused around building stronger labour market activation programmes, a more connected welfare system and an increase in investment by small and medium enterprises is very important. Well-designed strategy documents to the contrary, not many of these policies are in place, and there are few evaluations showing us just how good the programmes are.
The recovery is not evenly distributed. Dublin is raging ahead while other areas are not experiencing the same levels of growth, at least not yet. Quarterly, more then 60% of the new jobs were created outside Dublin, so there is hope, but the lag remains. Regional development has been shelved since before the crisis really hit, and a new approach, learning from the disastrous planning and spatial strategies of the past, is needed.
Ireland’s unemployment story is tightly bound up with emigration—for which we have no good data—and demand. Much of the decrease in unemployment has come from outward migration. The single largest factor effecting the population of this small island is migration. The economy is composed of people. When people buy things, their purchases stimulate employers who sell things to increase employment levels, once they feel they can afford the wage bill. The lag is obvious but the multiplier effect of one person’s actions on many is not. The contribution of increased demand to the health of the economy heals many wounds. We get increased employment, increased tax revenue, falling social protection spending, increased household disposable income, increased consumption, higher expectations of future growth and more investment. Employment is the best anti-poverty strategy in the world, and, if this increase in employment even partially succeeds in wiping out long-term unemployment, will heal a number of social wounds. The increase in prices will also help heal our bank and firm balance sheets. If households in debt get enough income to pay some of that debt down, our precarious debt levels can start dropping, too. Employment is the key to turning on the virtuous cycle of demand and growth. Ireland’s domestic demand is forecast to increase by 3.8% next year.
Sociologists used to use the term ‘latent function’ when talking about education. The idea was that by educating workers in schools in the early 19th century, you would get them used to showing up on time, sitting down for long periods, doing what they are told, thus preparing them for working in an industrial world. Employment is a kind of latent function for prosperity. Some jobs can be utterly rubbish, but having one is the key to higher living standards for the population of this little country.
Another feature of our labour market is the changing nature of who, exactly is taking part in it. When you look at projected population statistics from now until 2021—the period covered by the Spring Statement—you see the key influence of demography. For example, in 2016 there will be 376 thousand people aged between 35 and 39. This number will shrink to 346 thousand, while those aged 55 to 59 will increase from 268 thousand to 297 thousand. Ireland and its workforce is getting older, and this will have serious effects on employment, productivity, and government expenditure, both in the short and long run. The implications of workforce aging for the stock and flow of workers in the Irish context is poorly understood, and more research is needed to figure out what impact an aging workforce will have on the economy. These impacts will be both positive and negative, of course, but from the point of view of policy makers who have to find the money to pay for services as well as writing policies to change behaviour in smart ways.
There’s only one way to see the increase in employment: as a good thing with a possibility for much more in the future. It is always a good thing when the government’s own target for jobs gets smashed well ahead of schedule. The deeper dynamics driving this recovery shouldn’t be forgotten however. The increase in employment is coming from increases in demand, because people have a little more money to spend again, and the government itself is spending again. These facts should help inform a debate about minimum wage policies and public sector pay. Decreasing the minimum wage, for example, makes no sense whatsoever. Neither does increasing public sector pay beyond the minimum of what is politically acceptable. I say that as a public sector worker. The government’s target of what it calls ‘full employment’ is a shade over 7%. At this rate it will reach that target in late 2017, too late for the current government. The devil is in the detail of the employment numbers, not their downward dynamic. When you hear the sound of backs being slapped because the unemployment numbers are getting less awful faster, beware.
Published in the Sunday Business Post, 24/05/2015.