The title of Colm McCarthy’s Post Goodbye to All That is Robert Graves’ account of his experiences in the Great War. This evoked in me some nostalgie de la boue so I had a look at a graph of Ireland’s unemployment rate.
Looking at the early years in the graph, it seemed that the surge in unemployment in the first half of the 1980s got built into the structure of the economy. Indeed, an influential comparative study of unemployment in OECD countries estimated that the Irish equilibrium or “natural” unemployment rate had risen from 9 per cent over the period 1969-79 to 13.1 per cent between 1980 and 1988 (Layard, Nickell, and Jackman, Unemployment: Macroeconomic Performance and the Labour Market, Oxford University Press. 1991). As if to vindicate this claim, after a faltering improvement in the early 1990s, the unemployment rate was headed for 16% in 1994, some five years after growth had resumed.
There was, of course, a lot of debate about how genuine the unemployment – especially the Live Register (LR) – figures were. In 1996 the CSO undertook a special inquiry that showed less than half of those registered as unemployed were unemployed in the ILO (Labour Force Survey) sense of the term. As a result after September 1998 all those who have been unemployed for six months were called for interview to assess whether they suitable for an existing vacancy or in need of training. To cite the OECD, “nearly half either failed to attend the interview or refused intervention, and 28 per cent were struck off the rolls . . .”. This helped close the very large gap that had emerged between LR unemployment and unemployment as measured in the Labour Force Survey. However, it would not affect the ILO estimates shown in the Graph and its timing does not coincide closely with the rapid fall in unemployment that began in 1994.
Once it started, the decline in unemployment was spectacular. By 1999 the rate had fallen to 4% and it remained close to this level for the next six years. At the same time our emigration was reversed and large-scale immigration became a feature of our economy. Behind all of this was a rate of employment growth that has few parallels in any country.
I hope Colm will permit some nostalgia for these years.
It would be nice to be able to draw lessons from this period that would serve us now that we are experiencing such an extraordinary reversal of fortunes on the labour market front. I tried to do so in a chapter over-optimistically entitled “When Unemployment Disappears: Ireland in the 1990s” [Chapter 8 in Martin Werding, (ed.), Structural Unemployment in Western Europe: Reasons and Remedies, MIT Press, 2006]. My conclusion at the time was that “The exceptional performance of the Irish labour market during the 1990s was not triggered by radical structural reforms”. This despite the fact the a new emphasis on active labour market policies did make some contribution. Note that these policies have not averted the unprecedented rise in unemployment over the last two years.
A Keynesian story does better as an explanation – increases in aggregate demand fuelled by global growth, inward FDI, competiveness etc.
These conclusions point to a gloomy prognosis for our unemployment rate as the macroeconomic conditions of the late 1990s are unlikely to reappear for some time.