Class and Employment Decline

The main reason why unemployment has been rising faster in Ireland than elsewhere, and why it has been rising faster among the less educated section of the population and among the younger section of the population, lies in the nature of the recession in Ireland as compared with other EU countries. In other countries the recession has been concentrated on manufacturing and services export industries. In Ireland it has been concentrated on consumption and investment industries (pubs, shops, restaurants, building etc). As in all countries, far more people work in the latter than the former, and the less educated and the less skilled work almost entirely in the latter.

The glaring contrast between the recession in Ireland and that in other EU countries was highlighted in today’s GDP figures which are analysed below. I must say I’m rather surprised that no thread has been opened on the site to discuss today’s GDP figures. The publication of the national accounts is the quarterly highlight in most economists’ lives. So, the absence of any thread to discuss them is a bit like reading the paper the morning after the All-Ireland Final and finding that it isn’t mentioned. I can only conclude that the powers-that-be on the site would rather they were not anlaysed and discussed here because they totally refute the theory, held by most of the leading economists who post regularly here, that the recession in Ireland is primarily caused by a loss of competitiveness, the remedy for which lies in massive wage cuts, social welfare cuts and public expenditure cuts.

For the past year the false analysis given to us by the Government, the Opposition, the Fitzgerald father and son, Finfacts, IBEC, ISME, IEA, Alan Ahearne, and numerous others, is that Ireland is suffering from a massive loss of competitiveness, that has resulted in a loss of market share and soaring unemployment, and for which the required remedy is the cuts mentioned above. Just how absurd this analysis is can be seen from the export volume figures published by the CSO today. I have collated the corresponding figures for all EU countries that have so far reported GDP figures for 2009 Q1, and these are given in the following table. The figures are for export volumes (not values) and are for total exports (goods + services), so they are the most accurate measure available as to how EU countries were faring on the export front in 2009 Q1. As the figures show, not surprisingly given the global recession, all EU countries recorded a fall in export volume between 2008 Q1 and 2009 Q1. However, the fall in Ireland was by far the smallest.

y-o-y change in volume of total exports (goods + services) in 2009 Q1:

IRELAND -3.0% <<<<
Poland -9.3%
U. Kingdom -11.0%
Austria -11.4%
Netherlands -11.4%
Cyprus -12.8%
France -12.9%
Lithuania -14.5%
Belgium -14.6%
EUROZONE -14.6%
EU17 -14.7%
Latvia -15.2%
Estonia -15.4%
Sweden -16.6%
Malta -17.4%
Czech Rep. -17.5%
Hungary -18.0%
Spain -19.0%
Portugal -20.8%
Greece -20.8%
Italy -21.7%
Slovakia -24.7%
Finland -25.4%

What is apparent now is just how inaccurate nearly all forecasts of Ireland’s export performance in 2009 are turning out to be. The IMF and the OECD both forecast recently that the volume of total exports (goods + services) from Ireland would fall by 10 per cent in 2009. The Irish Exporters Association (IEA), to much fanfare on this site and sites such as Finfacts, recently forecast that the volume of total exports (goods + services) from Ireland would fall by 13 per cent in 2009. Naturally, the IEA demanded that, in the face of such a collapse in exports (invented though it was), employees in exporting companies agree to massive pay cuts of up to 20 per cent. But, as today’s figures show, the actual fall is turning out to be a fraction of that forecast and the lowest in the EU. One can only assume that the Irish Exporters Association were lying when they published their forecast of a 13% fall. Its also worth noting that the fall in export volumes from Ireland was much less than that from the U. Kingdom, despite the fact that in 2009 Q1 Sterling had been devalued by almost 35 per cent against the Euro (it has since recovered a bit).

What is more, the full-year outcome for 2009 is likely to be considerably better than even the relatively good export performance Ireland achieved in 2009 Q1. Between 2008 Q1 and 2009 Q1, the actual fall in export volumes was only 3%. But, 2008 Q1 was the peak quarter for global trade in 2008, 2009 Q1 is likely to be trough quarter for global trade in 2009, while the Euro was at its peak rate of 95p Sterling for most of 2009 Q1, but has since fallen to 85p. If the y-o-y fall in Ireland’s export volume was only 3 per cent in 2009 Q1, then there must be an excellent chance that the full-year outcome for 2009 will be a much smaller fall than 3 per cent, and quite possibly an actual rise in export volume. The volume of exports from Ireland in 2009 Q1 was only 2 per cent below its 2008 full-year average. Given the fall in the value of the Euro against Sterling since 2009 Q1, and the forecast upturn in global trade in the second half of 2009, an actual rise in Ireland’s export volume in 2009 is a distinct possibility. So much for the IMF, OECD and IEA forecasts.

But, if exports are doing much better than anyone (with the possible exception of my humble self) forecast, why is the fall in GDP higher in Ireland than in most EU countries and why is unemployment rising faster in Ireland than in most EU countries?

The answer lies in the figures given in the following table. This one gives figures for the volume of private household consumption in 2009 Q1. As the figures show, between 2008 Q1 and 2009 Q1, the fall in the volume of private household consumption in Ireland was one of the highest in the EU, the exact opposite of the pattern prevailing for export volumes.

y-o-y change in volume of private household consumption in 2009 Q1:

Poland +5.2%
Czech Rep. +3.0%
Cyprus +2.7%
France +0.5%
Slovakia +0.3%
Germany -0.1%
Greece -0.1%
Austria -0.4%
Belgium -1.1%
EUROZONE -1.1%
Portugal -1.7%
EU27 -1.7%
Netherlands -2.3%
Malta -2.4%
Italy -2.5%
Sweden -2.7%
U. Kingdom -2.7%
Finland -2.9%
Spain -4.0%
Hungary -6.0%
IRELAND -9.1% <<<<
Lithuania -14.3%
Estonia -16.5%
Latvia -19.1%

These figures blow the ‘loss of competitiveness and loss of market share’ explanation for the increase in unemployment in Ireland out of the water. Not to put too fine a point on it, it is a FRAUD, a LIE. Those who continue to propound this ‘explanation’ are either right-wing ideologues or on the payroll of vested interests.

It s clear that the rise in unemployment in Ireland is due to a contraction in private household consumption and not to any fall in exports. This contraction has come about because Ireland, uniquely in the EU, has been subject to massive tax rise and massive wage cuts. In every other EU country, wages are rising. Only in Ireland are they being cut. The reason they are being cut, with disastrous consequences for household spending, is because economists (for example, ESRI, Alan Ahearne, and others) succeeded in convincing the Government and the public that Ireland had a ‘competitiveness’ crisis. Today’s figures show it was a LIE.

[commenting politically]

These figures show the root cause of the defeat of the Lisbon Treaty. As things deteriorate further the risk of losing the Treaty referendum a second time must be considered substantial.

These figures also show that we are in danger of losing the equality and blurring of socio-economic classes which was achieved over the last number of years.

Unsustainable employment in construction leading to increased college drop-outs and increased manual labour were clearly a large factor. Many of those people were academically capable of achieving third level qualifications. Those people must be given a way back to achieve third level qualifications or equivalent.

Where an entire segment of society suffers worse than another segment of society then the risks of social unrest and division are increased. We see this in the election of PBP, SWP and Independent candidates in the local elections. We see this in the defeat of Lisbon. Public sector versus private sector is a laugh compared to the real divide that could infect our society and destroy the national unity that we need to get through this.

Sean – the wider consequences of unemployment among young people is something that merits further research between economics and sociology. We have been talking a lot about the overlap with home equity. The overlap with number and age of children is something that hasnt been mentioned yet. Parents tend to be good at smoothing children’s consumption at least in the literature I read but the more subtle effects on children’s expectations and life adjustment from growing up in neighborhoods where their parents and many of the other people of similar ages are unemployed is a question that is as important to economics as it is to sociology. The peer effects generated by having large cohorts of young people not making transitions to stable employment is something that needs better and less ideological analysis. George Akerlof and Rachel Kranton’s work is some of the best at the interface of economics and sociology. Worth looking at this in terms of conceptualising some of these issues.

http://ideas.repec.org/e/pak7.html