Seamus McGuinness and Philip O’Connell: The Costs of Working in Ireland Post author By Philip Lane Post date June 16, 2012 Seamus McGuinness and Philip O’Connell provide a critique of the estimates of Crilly, Pentecost and Tol in this note. Categories In Uncategorized 34 Comments on Seamus McGuinness and Philip O’Connell: The Costs of Working in Ireland ← IMF Sixth Review → Germany, Greece and the Marshall Plan 34 replies on “Seamus McGuinness and Philip O’Connell: The Costs of Working in Ireland” I welcome, with a hint of sadness, this note. Seamus and Philip roughly accept our estimate of the cost of working, but not our estimate of the income gain when working. They first replicate our estimate with data that we do not have access to, and find numbers that are not too different. Then, they re-estimate the relationship, using the additional data available to them. Their results are substantially lower than ours: 1 in 5 families with children are better off on the dole. This is in sharp contrast to our 2 in 5. It is in sharper contrast to the previous estimate, by Callan et al., of 1 in 100. I write this with sadness because we had repeatedly asked people in the Social Policy division of the ESRI to help us with this part of the analysis. They have access to better data and much deeper knowledge about incomes and income differences. It is unfortunate that this was played out in the national media rather than in the corridors of Whitaker Square. Four different estimates have come from the Esri on how many would be better off on the dole: 1) Richard’s 40+% 2) The above ~20% 3) The number in press release earlier this wk from Esri ~10% 4) The above mentioned official 1% And the Esri paint Richard Tol as the problem ? It would be strange that over a 3-week period when the paper was online for public viewing that no staff member had raised any question about the 44% figure. A contemporary survey would surely show that the pay premium over welfare payments is narrower now than in 2005. Survey data is often subject to a lot of assumptions and in some months the US Bureau of Labor Statistics household employment survey data differs significantly from its establishment survey data, which are both used in the monthly employment report. Last March, the Fed said nonfinancial companies ended 2011 with a record cash hoard of $2.23 trillion. Last week, that figure was cut to $1.72 trillion – – a cool half-trillion-dollar revision! The use of the term ‘seriously flawed’ in the public statement was inappropriate. This is even more so in the context of a situation where production data that may include wholesale trade is taken as fact; possibly €30bn or more of the value of services exports relates to sales in other countries — unrelated to economic activities in Ireland – – but the published data is invariably analysed as if no qualification is necessary. Besides, ministerial statements are made on for example regional or country trade that are misleading. It’s bad enough when a minister would brag about increasing exports to Belgium, ignorant of the fact that Brussels is Europe’s main airfreight hub, without facilitating the perpetuation of further myths. It looks like the Indo has the bit between its teeth and won’t ease off: http://www.independent.ie/business/in-the-eye-of-the-storm-3139884.html This little cranky episode is only the tip of a very big iceberg that has holed the ESRI below the water-line. Rather than further ‘trial by media’, what is required is the establishment of a commission of investigation in to the role, functions and funding of the ESRI – with the members of the commission from outside of Ireland. The squabble between Tol and the ESRI has detracted attention from the core issue, which to my mind is: Does the combination of the social welfare benefits available to the unemployed and the costs of going to work create a serious incentive to remain unemployed? There has been no explicit discussion of this point in the controversy that followed the release and withdrawal of the CPT study. The study used data for 2005, when the unemployment rate was very low and the employment rate of married women fairly high. This suggests that however valid or invalid the data presented in CPT, their study has little bearing on the current unemployment crisis. Surely the real barrier to returning to work in Ireland would be the lack of jobs? Not that you can’t afford to because it might be a bit more expensive and so you are in an ‘unemployment trap’ I have to say I’m disappointed by the ESRI’s treatment of this issue. WIthdrawing the paper smacks of censorship and silencing dissent. I have to give credit to Prof Tol for trying to speak truth to power. Dissenting voices and an open intellectual conversation is needed in Ireland – not the withdrawing of working papers. I hope some good can come of this. What could be more irrelevant than talking about incentives to work when there are 400,000 unemployed? Is there some suggestion that there are thousands of unfilled jobs out there? Because if there is not, this is only about reducing the dole. There is something nauseating about secure over-paid academics taking aim at the unemployed. Most of the unemployed held productive employment until the crash. Most were net contibutors to the economy, doing their jobs well. Unlike Irealnd’s economists, and particularly the ESRI. We do not need to go into the ridiculous reports co-signed by Tol that allowed the state to sleep walk to disaster. The contribution of economists and the ESRI to the economy has been been negative and damaging unlike the majority of those unemployed who have suffered hugely from the ineptitude of Irish economists. When Tol was tackled on the ESRI reports he co-authored, he defended himself that he knew nothing beyond energy economics. Now suddenly he is expert on the economics of social policy. Ask ye’re yourselves. has a single economist become unemployed as a result of the crash? In all honesty shouldn’t some of you have joined the army of unemployed that ye take such pleasure in kicking? There is a shameful elitism at the heart of this whole discussion. in all that excitement there is a question about costs that is getting overshadowed . Whatever the effect of “costs” in 2005 , Ireland is currently required to reduce them- and very significantly, compared to 2005. What those costs are NOW and why should be being estaished as a matter of urgency. The reason for this is not the slightly politically charged one that suggests people are unemployed by choice, but one of general international competitiveness. if these current costs are a mystery to Irish policy makers and academics, how come they are not jumping up and down demanding to know? Is it easier to campaign for the Germans to send more money? popped this into earlier thread – popping it in again: @Seamus McGuiness & Philip O’Connell Firstly, appreciate the effort, as Irish citizens, in replicating and reestimating the data wrt to the Crilly, Pentecost & Tol paper. Getting out in the boonie_docks in this timely fashion and into the weak Irish Public Sphere on major policy issues is something we need more of, and much more of … Just two points to note at this stage from your review: Summary Table, P. 1. [no childcare; 1 child under 5 – (15; 44) (27; 41) (9; 19) (1; 3)] …. and the variation here, if presented to a group of junior infants would send them running home to mammy and daddy screaming that their teacher was either useless or mad or more probably both. Provisional conclusion #1 Crilly, Pentecost, Tol, McGuiness & O’Connell are either useless or mad. There certainly appears to be some strong support for this assertion; that said, based on age, experience, and ‘form’ I must pragmatically reject this assertion as Nonsense (and place it in the blind_biddy bin with the fiscal-korset) Provisional conclusion #2 Irish Data is Sh1te There cetainly appears to be some very stong implicit and explicit support for this assertion in both the original working paper and in the review and alternative statistical analysis provided here. I provisionally accept the assertion that ‘Irish quantitative data is sh1te’. This brief begs two suggestions: Q1. What is needed to improve quality of Irish quantitative data? DO IT. Q2. Do more interviews with real people on the complexities of the ‘dole’ to ‘work’ transition that are quite simply unavailable to the limited ontology demanded by neo-positivisist research. (yes, it is expensive, but so is paying out 90 odious billions in welfare to dodgy financial system) Great empirical display by Ireland in Christchurch vs the All Blacks. @Christchurch, New Zealand Welcome back! IMF Press – The Conference Call FYI Transcript of a Conference Call on Ireland http://www.imf.org/external/np/tr/2012/tr061512.htm MR. BEAUMONT: On the first point, it’s certainly the case that Ireland’s ability to regain market access depends very much on broader financial conditions in the Euro Area, especially in 2013, and so that remains a risk. In terms of the point about political support and the promissory notes, in fact, everything we write is directed to our Board, so we’re helping our Executive Board understand the domestic situation in Ireland. These promissory notes used to recapitalize failed banks entail repayments of 3.1 billion euros annually, which is quite similar to the amount of fiscal consolidation that is done annually. These notes are very difficult politically to keep servicing in the current manner, and that’s what we saw at the end of March where instead of making the repayment in cash, the repayment was made in the form of a long-term government security. MR. BEAUMONT: Yes, this is specifically in relation to a potential shortfall in growth in 2012. Currently we have no signs that, but if it were to happen, we would support accommodating a revenue shortfall rather than trying to offset it within the current year. Just tried to phone IMF – on hold – they have switched from Fields of Athenty in Gdansk to There Is An Isle in Christchurch ….. fairly tuned in alroight these days! NOW KEY POINT Strengthening growth and job creation is critical to the success of the program. Stronger support for job seekers in obtaining jobs is needed, where private providers of case management and employment services may have a useful role to play. It is also important to make sure that the structure of social payments does not contribute to long-term unemployment, and this is the topic of a cross-departmental review. JUST WHAT DATA IS BEING CONSIDERED IN THIS CROSS-DEPARTMENTAL REVIEW? WHO IS CONSIDERING IT? WHAT DATA SETS ARE BEING USED? HOW ARE THEY BEING ALALYSED. AND HOW CAN ONE TURN A SILKEN POLICY PURSE OUT OF A SOW’S EAR OF SUPPOSEDLY SH1TE DATA? Pretty relevant …. I think any substantial increase in employment while we remain in the euro structure would paradoxically drive our current account into defecit which the finance capitals cannot allow to happen if they are to survive in their malevolent form as cities must always remain in defecit to their hinterlands. (they aim to reduce this defecit via Grand projects but it will take some time – fr.wikipedia.org/wiki/Grand_Paris_Express) This input / output crisis is a result of the credit hyper inflated built envoirment and the refusal to wipe out private debt – as Sporthog notes in the previous Toll peice the continual turnover of jobs has extended the distance of many home owners from their jobs , increasing their inputs. @PR Guy “Surely the real barrier to returning to work in Ireland would be the lack of jobs?” +1 @Tim O’Halloran “What could be more irrelevant than talking about incentives to work when there are 400,000 unemployed? Is there some suggestion that there are thousands of unfilled jobs out there? Because if there is not, this is only about reducing the dole.” A few more points: 1. Surely one of the determinations of international competitiveness are labour costs in Ireland versus labour costs in competing (partner!) countries. 2. The differential that exists between working / non working remuneration will not affect that competitiveness, unless of course one succeeds in reducing labour costs indirectly by forcing unemployed people to take work at lower rates. 3. Personally I am distinctly uncomfortable when the discussion comes around to reducing the social welfare for larger families under the guise of incentive to work, knowing full well that there are no jobs out there and that the reduced social welfare will directly impact the futures of the children of those households. Facts are sacred–lets stick to the facts, play the ball ,not the man. Below is a fact it happened in 1999; I am curious that we have not heard anything from the other two authors of the Crilly, Pentecost and Tol working paper. The sequence of the authors would suggest that they did most of the work. Do they stand over the work and were they happy for it to be uploaded? Also, as a researcher who works in a field (ecology) with many of the same issues about data quality, etc as economics, I find it very surprising that the CPT paper has no sensitivity analysis This reminds me of some 1930s style music-hall chant: “Yes! it is”. No! it isn’t”. There is no longer any direct connect between welfare payments (which are I assume are to prevent folk throwing rocks instead of insults) and waged labour rates. Hence the useless ‘debate’ about the issue. Wage rates have to be reduced. Its all about productivity and competition. Yes? No?. Well some folk had better make up their minds pretty quick since I judge them to be either menadcious knaves or utter fools. Our economy is regressing. As a simple social experiment lets stop ALL welfare payments (I jest of course!) and see how long it takes for the un-employed to find jobs for which they are suited. Might be a long wait. If I were of a paranoid disposition I would say this whole affair is straight out of John LeCárre. However my experiences are that there are always a sufficient number of executive and clerical gobshites willing and able to present themselves as ‘defenders’ of the Staus Quo (aka: their increments, paychecks, perks and promotions. G B Shaw made a totally disgraceful comparison between ‘doing’ and ‘teaching’. What he should have said, had he the intelligence to understand was; “Those who can, teach. Those who cannot, do research and the residuals are promoted” I note with a mix of sadness and irony that the report of Messrs McGuinness and O’Connell shows no evidence of having been peer-reviewed, which presumably means we can dismiss it entirely and henceforth refer to Messrs McGuinness and O’Connell as poopy-heads. @Paul Hunt It looks like the Indo has the bit between its teeth and won’t ease off A Depfa board member? Wow. It’s notable that the ESRI was a project of the T.K. Whitaker/Paddy Lynch golden generation – as also, it seems, was the “pillar banks” set-up that arose when BoI in its modern form and AIB were put together through mergers in the ’60s. Both setups seem to be cozy in similar ways. Mick Clifford takes The Aesthetic Turn in his ‘review’ of Crilly, Pentecost & Tol Doling out what everybody knows… By Michael Clifford Saturday, June 16, 2012 “Everybody knows that the dice are loaded, Everybody rolls with their fingers crossed Everybody knows that the war is over Everybody knows the good guys lost.” SO wrote Leonard Cohen in his song entitled ‘Everybody Knows’. Universal truths are something everybody knows. One universal truth at this time of living austerely is that those without work have it made. Everybody knows that the dole is generous, everybody knows that welfare life is warm, everybody knows that they’re acting the maggot, everybody knows it’s doing fierce harm. Well, almost everybody. The 450,000 out of work may have a different take on these things, but nobody is really asking them. http://www.irishexaminer.com/opinion/columnists/michael-clifford/doling-out-what-everybody-knows-197581.html … but nobody is really asking them.’ Quite! Kyran Fitzgerald on a reasonably balanced introduction to ESRI Director Prof. Frances Ruane and a mild critique of ESRI …. She has written extensively on factors driving foreign direct investment in Ireland such as the development of clusters and “agglomeration economics”. She regards the consistently positive stance of successive Irish governments towards multinational investments as critical, but warned that Ireland’s corporation tax regime is “under pressure in an EU context”. As a sister of retired senior banker Jim Ruane and sister-in-law of former attorney general Paul Gallagher, who was closely involved in the events of Sept 2008 and in the run-up to the Nov 2010 bailout, the ESRI director is well connected to the business and legal establishment. She has served as a director of several high-profile organisations including the Abbey Theatre and Bord Gáis. She also served as a non-executive director of Depfa Bank, the IFSC-based German property lender which ran up billions of euro in losses and had to be rescued by the German government in 2007. However, she is just one of a long line of people who have discovered to their cost that membership of the board of a financial institution comes with reputational strings attached. At a post-crisis seminar in Trinity, Ruane argued that Ireland has suffered reputational damage and faces a skills shortage, particularly in the public sector. Something similar could be said about the organisation she heads up. … Richard Tol may win few marks for diplomacy or sensitivity, but his ability to communicate directly and forcefully using new media is worth imitating. … In reality, the contribution of its research team to the debate on poverty and long-term unemployment has been considerable. Researchers such as Tim Callan and Philip O’Connell have built strong international reputations in these fields. Much of this commitment can be traced back to former director Kieran Kennedy, who was no slouch when it came to pointing out to Merrion St in particular the errors of its ways. A muzzling or sidelining of the organisation would not serve the national interest. It remains one of the few sources of disinterested information in the country, with a much greater focus on applied economics than exists in the third-level sector. The organisation needs to become more assertive — and perhaps less respectful and introspective. It needs to adapt, like it or not, to the age of the tweet and the instant response, and its executives need to speak truth to power, and specifically to the business and bureaucratic mandarins on its governing council. http://www.irishexaminer.com/business/a-clean-conscience-despite-sins-of-omission-197630.html @Richard Tol: “I write this with sadness because we had repeatedly asked people in the Social Policy division of the ESRI to help us with this part of the analysis. They have access to better data and much deeper knowledge about incomes and income differences.” Even if entirely true, this absolves you how? Why proceed to fritter away research resources if you know better quality explanatory data and expertise exist elsewhere ‘in house’? You’re conceding awareness of research shortcomings and unreliability before you even set sail. You can seek immunity in laxer ‘proof of concept’ standards – but can’t at one and the same time baldly claim precise percentages of the population are better off not working in the ‘real world’ 2005 – or any other time -without qualification. @NEL We had to choose between doing it ourselves or not at all. Prof. Ruane has done some public service by highlighting how research that might question the basis for the beliefs and prejudices of governing politcians and policy-makers is either not done, or, if done, is suppressed. It brings the entire raison d’etre of the ESRI in to question, but I expect Official Ireland has fingers crossed that the Greek election and its aftermath will bury this story. @Richard Tol I see that Brenda Power is having a pop at you on p.11 of the Sunday Times today. I bet you will lose loads of sleep over that (not). “Surely the real barrier to returning to work in Ireland would be the lack of jobs?” This is of course true. But I also don’t think anyone would argue that you are producing more services than people could want or use in Ireland. Things are not that good. The issue is that these services cost too much for people to afford right now so there are not jobs to supply them. Having 400,000 people unemployed is tragic on a personal level and a futile waste on a national level. The whole nation would be richer if everyone was working. But that will not happen with current cost structures and dole levels. We live in a world with massive and growing income inequality. Unskilled jobs pay a pittance in many countries with similar overall income levels to ireland. So there is a choice: if we are going to get serious about unemployment:1) we accept these income disparities and develop a comprehensive system of transit, health, education, childcare and housing benefits to make an equitable society, 2)we just accept the inequalities, or 3) we just continue to price ourselves out of mass employment. @Richard Sometimes it’s Publish AND be damned. Incendiary misleading empirical claims off the back of a speculative model from “MacGyvered” data sets – even for a redoubtable Iconoclast – is hardly an appetising choice? Bottom line – it’s one you and your co-authors own; in deciding to proceed and publish you’re wholly responsible not the ESRI. The maxim “a bad workman blames his tools” still applies – even if he can’t borrow those of his colleagues. @NEL I am indeed responsible. @Richard Tol Text from the local ‘toddler group’: Ta Richard for puttin childcare on doze groan ups agenda – we’re sik of it – we would like a proper childcare system like the Finnish one …. p.s. we luv de hair – dont kut it. @grumpy ” these current costs are a mystery to Irish policy makers and academics, how come they are not jumping up and down demanding to know?” +1 Politicians should have a grip on how data is collected across the public service and who is failing to deliver data. There should be data collection audits and IT audits conducted by a body independent of other departments. All shortcomings in data should eb reported to this body as and when they are discovered so they can be logged and addressed. The other thing politicians need to do is to insist that the Statute system be redesigned to make statutes more modular so that they can be amended or altered without fear of unintended consequences. This could involve mapping out statutory interactions in graphic form or reducing them to an object oriented design schema. We have learnt a lot about how to make complex computer systems modular and more easily changed. These lessons in drafting should be applied to the statute system. @Zhou (and Grumpy) You make valid and useful suggestions, but they would fall well short of addressing Grumpy’s simple query. For a while I ceased commenting here because comments in which I was critical of academics with knowledge and competence for their failure to address the issues Grumpy has raised were being pulled. I’m back again because the treatment of this working paper provides ample evidence for the case I have being making for a long time. This comment is also relevant: http://www.irisheconomy.ie/index.php/2012/06/18/seminars-today-and-tomorrow/#comment-298748 The ESRI asserts on its website that: “In summary – independence is the hallmark of the Institute’s work. ESRI researchers work closely with commissioning bodies during the research process but retain the independence and freedom to publish, even where the results may prove difficult for such commissioning bodies.” This is highly disingenuous. The terms of reference and scope of work of any piece of research will be determined ultimately by the commissioning body and its stretches credulity that a commissioning body would willingly authorise and fund research “where the results may prove difficult”. Indeed, one would expect every effort would be made to avoid exploring questions “where the results may prove difficult”. And this is no less the case when the research is competing for funding from the allocation of general government funding. It should not be surprising that research of this nature will be vetted to ensure it does not question directly any of the beliefs or prejudices of governing politicians or policy-makers. What appears to have happened in this case is that the usual vetting wasn’t applied and this paper escaped – and had to be pulled. This is what passes for ‘independent’ policy research in Ireland. And we wonder why we’re in this mess and are struggling to get out of it. @Paul Hunt Minor point: The essence of research is ignorance. TV3 Midweek, Wed, 22.00 June 20 based on/due to this ‘working paper’ Comments are closed.