IMF: Structural Reforms in Ireland

Can anybody measure the effects of the reduction in the minumum wage?

I’d recommend that BL has a quick read of ‘The Spirit Level’ before he enacts amendments to the minumum wage.

To a large extent debt levels reflect poor pay and inequality.

“The views expressed herein are those of the author(s) and should
not be attributed to the IMF, its Executive Board, or its management.” And lets hope they remain the “views” of the authors.

Hopefully, the authors confine themselves to this sort of thing for a living, because they would be very unlikely, even with increased help from FAS to ever get a job in the real world.

I hope Jack O’Connor does not see this thread.

@PL

‘Labour Market Dualism’, addressed here ……… will increase.

IMHO, Social cohesion will decrease; the Underclass will increase in size; the Gangs will take over more Underclass estates; heroin will spread to every city, town and village; those who cannot afford multi-millionaire rows in the US or elsewhere will move to walled estates with heavy electronic and bully-boy security; the Gardai face a very difficult time;

‘» ‘Focus public resources on high-priority projects in the knowledge-based economy’

Human capital is foundation of social welfare/wealth creation: science, technology, business grads will emigrate, are emigrating ……… young entrepreneurs will seriously consider other juristictions …

HOW does this place generate Economic Growth? How low does the interest on Loans[bail-outs] need to be to give Ireland a fighting chance?

On a more optimistic note – Patricia the Sovereign_in_exile is well, and grateful to all our international friends for the support that she has received in recent times.

Personally, I intend to default; but I must emphasise that this is purely a personal decision.

One advantage of an R&D based economy is that the EU is pushing R&D smarties (not sure about blue ones) around the place at the moment. Funding from the EU is relatively sting-free, new money into the economy and may produce something longer term. Even if it doesn’t, it might increase the attractiveness of science and hard engineering based skills as there will be the possibility of employment in them.

What has to change is the method of accessing those funds. They are parcelled up as political favours through selected channels. They must be open to all to apply for.

@ Niall

There are plenty of studies on the effects of the minimum wage. They is no clear consensus either way on the effect of the minimum wage on employment. I know of no studies that specifically refer to minimum wages in a recession due to a demand shock.

Unsurprisingly the minimum wage does have an effect on equality.

Cutting the minimum wage is fairly short sighted in my view. It won’t create jobs (as min wage jobs are not exactly in export sectors), and will shift income towards rentiers and business owners. This will lead to a general lack of demand, which will hurt…
…precisely the sort of businesses that hire people on the minimum wage. Employment in sectors close to the min wage has stabilised (though there has been a shift from foreign workers to Irish nationals in these jobs).

The government should instead tackle non-wage costs to businesses, such as rent, electricity, insurance. The sort of thing that small businesses have been going on about for years.

@Rory
You are right, in a way. Perhaps it is a bit of both. Either way, it looks pretty structral. Looking at this table:
http://www.cso.ie/statistics/empandunempilo.htm
Unemployment has risen by 190k since mid 2007, fully 75% of which is accounted for by a fall in construction employment.
Surely a sensible approach would involve both supply and demand side elements? And if there is a binding budget constraint (which I know you don’t accept but it looks pretty tight to me) there can’t be any demand measures. So, as a matter of purely practical policy, its all down to that darned supply side.

@ simpleton

I’m in favour of supply measures like training and better matching. I think the ‘incentivising’ is pointless when the jobs aren’t there.

From a strictly labour market point of view (ignoring the budget for the moment) I see not point in adjusting welfare payments until we have job creation. When we have job creation then I’d be in favour of making more of an effort to get people to look for jobs.

As it stands we will just end up with 500 people applying for every job instead of 200 (figuratively, I’ve no idea how many people apply for each job).

@Hugh Sheehy

the political reality of lowering welfare and minimum wage will be something to see, even though the economic rationale behind it is strong.

Ah, but the second-guessers at the IMF tell us that: the evidence suggests that reformist governments have the same likelihood of being re-elected as those that favor the status quo and that governments receiving a clear mandate to reform go on to be re-elected.

Sure. What planet do they live on?

@The Alchemist
From the IMF study you quote:

“Better innovation and education can fill a substantial part of the productivity gap. On both counts, the euro area lags, with spending on private R&D and the share of graduates completing tertiary education substantially below United States and Japanese levels.”

Ah, but the second-guessers at the IMF know that the ultimate aim of all education systems is to ensure that 100% of school leavers eventually receive PhDs.

@David O’Donnell

How low does the interest on Loans[bail-outs] need to be to give Ireland a fighting chance?

My guess: minus 5%
By my standards you’re an optimist.

@ Niall

“If anyone is interested in reading an empirical study of the effects of inequality.”

I doubt it. We have spent decades making it a central plank of government policy.

What do you think Croke Park is for? Hint! is is not just used for deciding who gets to own the Liam McCarthy and Sam Maguire cups.

Robert

What Government that the PDs played a part of made reducing inequality a central plank of their policy.

If when Michael McDowell was minister for equality he stated that he belived that inequality was a requirement for a capitalist economy.

Increasing inequality will be no solution to economic crisis.

I thought Croke Park about protecting well paid civil servants?

@De Roiste:

Anything about reducing the pay and perks of TDs and ministers?? Are the pay of those at the top end of the public sector?? Or are these sacroscant just like our corporation tax??

In Mother Ireland, all is sacrosanct:
– Croke Park deal
– corporation tax
– minimum wage

At this writing, anyhow. Though the sacred may well have become pretty profane by year’s end. Wait until the ‘troika’ (EC, ECB, IMF) have had their say.

@Rory O’Farrell:

Cutting the minimum wage is fairly short sighted in my view. It won’t create jobs …

The logical corollary from this premise is that raising the minimum wage won’t destroy jobs.
Another corollary is that reducing the minimum wage to near-zero won’t create jobs either.

This will lead to a general lack of demand …

Penny-catechism Keynesianism, sorry doesn’t work since Ireland is anything but a closed economy.

The conclusions for me would be that whatever the authors are paid, they are overpaid.

Decrease benefits over time? Yep a given. In Ireland it seems to be the other way around, people will get more benefits when they’ve spent all their savings. Gaming of that system is neither hard to do nor beneficial for the society.

More money for unemplyment agencies? I think an optimum spending exists for that & I’m not sure it would be any good here.

Review minimum wage? Review means nothing but is an interesting point of discussion. Personally I think decreasing it would do more damage than good.

Knowledge economy? Anything said about that is waffle.

@Niall
Snap judgment after browsing thru the New Statesman essay:

TSL is choc-a-bloc full of fascinating empirical data but is based on post hoc ergo propter hoc reasoning.

Typical TSL argumentative style:
Inequality causes ill health

Tentative alternative explanation:
Low cognitive performance causes both inequality and ill health.

In other words, TSL appears to assume that inequality is the one and only independent variable.

Certainly worth reading and includes some fine whacks at low-level ‘market ultra-fundamentalism’.

I enjoyed the inverted commas around ‘ineffective’ in the reference to what economists delightfully call ‘ineffective demand’.

Can’t resist an old joke, hope you haven’t heard it too often before:

Two economists walked past a Porsche showroom. One of them pointed at a shiny car in the window and said, “I want that.” “Obviously not,” the other replied.

“net work industries” “knowledge-based economy” What do these terms mean?

Interestingly, I dug up what the IMF said about Ireland in 2006

http://www.imf.org/external/pubs/ft/scr/2006/cr06292.pdf

“The key macro-relevant findings of the FSAP Update are:

• The Irish financial sector has continued to perform well since its participation in the Financial Sector Assessment Program in 2000. Financial soundness and market indicators are generally very strong.

• The outlook for the financial system is positive. That said, there are several macro-risks and challenges facing the authorities. As the housing market has boomed, household debt to GDP ratios have continued to rise, raising some concerns about credit risks. Further, a significant slowdown in economic growth, while seen as highly unlikely in the near term, would have adverse consequences for banks’ non-performing loans.
Stress tests confirm, however, that the major financial institutions have adequate capital buffers to cover a
range of shocks.

• Good progress has been achieved in strengthening the regulatory and supervisory framework, in line with the recommendations of the 2000 FSAP. The strategy of creating a unified approach to risk with common elements across different sectors where appropriate, but differentiated where necessary, is being put into practice well. Improvements could nonetheless be made to enhance some aspects of supervision,
especially as regards supervision of insurance and reinsurance.

The FSAP team comprised Mr. Mark O’Brien (Mission Chief), Mmes. Su Hoong Chang, Elena Duggar,
Srobona Mitra (all MFD), Ms. Marialuz Moreno Badia (EUR), Mr. Jörg Genner (consolidated supervision
expert, German Financial Supervisory Authority (BaFin)), and Ms. Brenda Sylvester (assistant, MFD). The
mission received excellent cooperation and support from the authorities.”

I think I will stop visiting this site. I thought it would provide useful analysis and insight but it is at risk of being a fleeting/tweating opportunity for smug, self-congratulatory comments.
Guys (and gals), you’re missing a great chance to for this web-site and collection of smart people to make a positive, informed, coherent contribution to Irish society. Don’t miss that opportunity.

Re the labour market – all very well and good if there are jobs there.

Don’t get me started.

The issue here is how to turn around our Ireland
If we get a bail out us suggested to bail out the banks well we will be consuming the money and we will have to suffer for years and years later as bad loans will start coming in also we will still need money to sustain our survival so the vicious circle will get allot vicious
The tiger economy has killed our banks agriculture education and IT and made riche politicians with their friends from the banks even bogus loans were taken this government should not be in government they embezzled money from us to feed their greed
We the people then were happy cause we were working and believed we would be working now but the miss management off money at the banks and the greed of some is having me on the road looking for security
We the Irish people should get a bail out money towards employment to generate income savings and confidence and slowly fix our banks we the people make the economy from our hard work
Else we would be slaughtered by bleeding us slowly

Hmmm….I wondering if the IMF are now reading our posts?

@remnant – “I wondering if the IMF are now reading our posts?”

The IMF (and others) have always been reading our posts. Get with the conspiracy programme!!

Why not use unemployed construction workers to reinforce flood defences?
Why not employ unemployed phd students on researching and building wind turbines and tidal power projects?
Why not get unemployed language students to do tourism expos abroad?
And why not default? The reason used to be that if we did that the markets wouldn’t lend to us – guess what they’re not lending to us!!!
Let’s stop talking theory – let’s start talking unsexy practical interventions.

@Carolus Galviensis

A loan(bail-out) at MINUS-five percent interest! What a glorious concept – let’s get a trillion, pay off the quarter, put another quarter into a stimulus for the poor serfs, and head off for New England like the rest our financial geni_asses with the other half trillion.

@Brian Lucey

No. Dublin and the Pale in the 80s. …. steady in 90s – huge expansion, continuing, strangely in parallel with the artificial[now horrendously real] boomm and accelerating from 2002 [in line with increase in other indulgences in the more well heeled echelons on more sophisticated’ stuff] – and with present worsening labour market and social welfare conditions will almost certainly experience a further period of acceleration – and the social and psychological devastation that it brings, and further institutional deepening of a fractured society. Such is neither republican nor progressive.

Im no economist but will the knowledge based economy lead to new machines with higher production levels that will replace workers thus making them redundant and in the older groups of workers make them practically unemployable forever? Im all for progress but can we call it so when it will push families into poverty and the black market just to barely get by? Are we a society or are we just another nominal entry into the accountants cost of sales book.

Eureka Says:
November 22nd, 2010 at 11:37 pm

Well named!

It’s a while since I waded my way painfully through The Spirit Level, but I personally found it quite unconvincing. Many of the relationships identified appeared weak from the data presented, and at risk of disappearing if a different year’s data were used. A few of the relationships presented looked strong, but against that (if my memory is correct) the authors appeared to have skirted around variables that might have made unequal societies look good, such as unemployment rates.

In the meantime, as we fiddle, Ireland burns?

I say the fiddle players about a week ago. I always wondered what they looked like. There was a whole band of them out there yesterday making a right noise

@ Jack OShea
we must be careful about overdoing the role of public sector job cuts.
For every job cut it’s another mortgage in jeopardy, another set of discretionary purchases cancelled, and a dent in the quality of state services.
As the Guardian says our politicians have shipwrecked the country, they have destroyed the lifeboats (save the ones for their cronies and are rowing off into the sunset as they leave the private sector beats up the public sector onthedeck of the ship)
“Divide and rule” has gone on too long.
Our big issue is debt. We have got to get default back on the agenda.

The authors are wrong in their generalisation about the tax burden on second income earners in Ireland. They take the worst case scenario rather than the typical picture. Many double-income couples do not have children, they are increasingly delaying having children (www.irishexaminer.com/home/experts-call-for-fertility-warning-drive-136610.html) or deciding not to have children at all. Most families with children do not use childcare services- only 9% of children 12 and under are with a paid childminder and another 9% in creche/childcare institution. The vast majority are cared for by a parent or other relative. (2007 figures, from http://www.cso.ie/releasespublications/documents/labour_market/2007/childcareq42007.pdf) Those most likely to use childcare services are single-parent families and so are not second-income earners; in fact they are the only category of parents who benefit from child tax credits.

There is also no assessment of the impact tax individualisation has had on inflation, especially on the property bubble (cf. Richard Tol’s posting of EUVox article).

Despite our ‘baby boom’ we are still not at replacement rate. This will be one of the big economic issues for the next generation, not having a sufficient ratio of productive earners to retired/requiring care.

I have to agree with “Nobody”.

This blogg is loosing all appeal. I’ve been coming here for since it was set up and rarely felt any need to make comment (I’m here to read) but I can’t help but notice the volume of content posted is way up and quality has become questionable on threads like this.

It’s become difficult to seperate economic commentary/insight from politics, but there are more appropriate places for blowing steam.

At this rate you may as well introduce the ability to give a comment a “thumbs up” – at least then remarks can be ordered by relevance and integrity. ..then again this adds to the bias so often seen of late.

@ Eureka

I appreciate your point but an emotional outburst can get in the way of constructive thought (what we come here for). Also, indulging in a rant has an isolating effect – which just wastes everybodies time.

My point is that the blogg has seen an increase in fluffy posts lately, and “nobody” agrees ;o)

The suggestions for solving the problems of the Irish Labour market are mostly supply side – decrease unemployment by increasing the job-search skills of the unemployed and reducing the benefits of unsucessful job seekers.

This ignores the fact the increase in unemployment has been demand driven – to use Christy Moore’s phrase, there is ‘Not enough work to go around’. I would have been perfectly happy to see benefits reduced for long duration unemployed when our rate was below 5%, but not now that it is in double-digits.

Blaming the unemployed for the unemployment problem is not helpful!

@DOD
It was a critique of the close to 100% tax burden on second incomes assertion by the authors on p.19, not a prescription. But since you mention it perhaps society should be consulted!

@ Nobody and Peter

The contents of these posts reflect the fact that the crisis is longer a debate for purely acedemic elites. Everybody is involved and therefore everybody has the right to have a say.

I’ve raised the Spirt level above because the current economic system is broken…the solutions to Ireland problems are greater than rebuilding the banks; reducing the deficit and returning to economic growth. The full weaknesses of the free market capitalism need to understood, debated and redrawn.

@Eurika

I think the ECB should take some hit for their part in all of this – ten years of poor regulatory oversight, and a monetary policy (from day one) that was not in the interests of Portugal, Spain, Greece and Ireland.

They misjudged the health of the system they paid into and they want the money back in lieu of these bailout funds – making the Irish taxpayer the greatest fool.

Taxpayer liability could be minimised by restructuring the debt of the Irish banks and letting the ECB and the markets take the hit. David McWilliams suggested this yesterday and it’s surely worth exploring. It’s a radical suggestion, and it “carries the “reputational risk” that keeps the current flock up at night but the price might be right.

I would vote any government willing to try this. The gross inefficiencies in the civil service are second to this (“Penny-wise, pound-foolish”).