Month: December 2009

Retaining Talent

Yesterday’s QNHS (Q3 2009) release provides a timely update on trends in the immigrant workforce.   In the period from the third quarter of 2008 the number of non-Irish nationals in employment fell by 61,600.   This is equals half the fall in the employment of Irish nationals (123,200), even though non-nationals represented only 13.6 percent of the workforce in Q3 2008.

It is also evident that many immigrants are returning home, with the total population of non-nationals (15 and over) falling by 41,000 over the year.   This might be welcomed in the short run if it limits the rise in unemployment.   But returnees also ease the downward pressure on wages.  Over the medium term, it is not a bad rule of thumb to view a country’s equilibrium unemployment rate as independent of the size of its labour force. 

Looking to the longer term, the return to net emigration is a worrying development.   As is often observed, Ireland’s high degree of factor mobility makes the economy operate more like a regional than a typical national economy.   An expanding skilled workforce gives the economy the scale, diversity and connections to support innovation-intensive growth.   Indeed, the empirical regional/city growth literature points to initial human capital as a strong predictor of subsequent growth (see here).   A truly smart “smart economy strategy” will recognise the value of getting–and keeping—talented people here. 

A Behavioural Model of the Department of Finance

For faithful members of the 46-ers*, the new government budget proposal creates cognitive dissonance.  How could a government so wasteful in its bank-bailout policies produce a general government budget proposal that seems so carefully and sensibly crafted to address current fiscal and competitiveness problems? In contrast to bank-bailout policies, the new general budget seems reasonable, balanced and fair, but as stringent in difficult circumstances as could possibly be asked. Does the Department of Finance (DoF) suffer from bipolar syndrome?  How can we understand its behaviour?

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Jeffrey Sachs: Rethinking Macroeconomics

Jeffrey Sachs has an interesting new essay on the priorities for macroeconomic research: you can read it here (requires registration but it is free).

IT Article: NAMA Will Not Get Banks Lending

Here‘s an opinion piece I wrote for the today’s Irish Times. I’d add three points. First, I’d note that back in February, prior to Peter Bacon delivering his report recommending a National Asset Management Agency, I wrote the following about the idea of a bad bank or NAMA as it became known:

In addition to being unfair, it is questionable whether the bad bank proposal could achieve its goal of properly re-capitalising private sector banks. There may be limits on the price the Government can pay for impaired property loans under EU state aid rules. Banks may still have to write down their assets. It is easy to imagine a scenario where banks struggled with weak capital bases even after a bad bank scheme has been put in place.

I am in no way happy to report that it looks like this scenario is exactly what appears to be coming to pass. Indeed, I wrote the article—my first ever for a newspaper—because I hoped that some solid arguments expressed in public may prevent it from happening.

Second. I’ll freely admit that the article comes across as somewhat angry in relation to the government’s misrepesentation of the role, if any, of the ECB in NAMA. What I find amazing looking back on the period during the Summer and early Autumn when NAMA was being heavily debated in the media is the fact that Irish business journalists happily accepted the “free money from ECB” line and peddled it regularly in their columns and in the broadcast media. The Irish public would have been better served if it had even a few journalists willing to research this issue a little bit further, perhaps via a few Google searches.

Third, it seems that there is little appetite out there among journalists for admitting the true state of the Irish banks or for preparing the Irish public for what may be necessary to stablise the situation in the coming months. This may be related to the second point above.

Investing in Electricity Infrastructure and Renewables in Ireland

With three colleagues Seán Diffney, Seán Lyons and Laura Malaguzzi Valeri, we have recently published a series of papers on the economics of the electricity industry in Ireland. The conclusions are summarised in a Research Bulletin published today. There is also an article in today’s Irish Times.

The original papers are:

DIFFNEY, S., J. FITZ GERALD, S. LYONS and L. MALAGUZZI VALERI, 2009. “Investment in Electricity Infrastructure in a Small Isolated Market: the Case of Ireland,” Oxford Review of Economic Policy, Vol. 25, No. 3, pp. 469-487. Available here. We will release a working paper with additional results on this topic in the next few days.

MALAGUZZI VALERI, L., 2009. “Welfare and Competition Effects of Electricity Interconnection Between Great Britain and Ireland”, Energy Policy, Vol. 37, pp. 4679-4688. available here. An earlier version is available as a working paper.