Irish Unemployment

I was asked to provide links and suggestions in terms of policies to respond to unemployment in Ireland. The broad fiscal and monetary causes of unemployment are discussed in many other places and it is clear that a combination of a property bubble, banking collapse and policies that have kept aggregate demand too low are all contributing factors. In considering unemployment, it is clear that more than just the short run shock to income and consumption should be considered. There  is substantial evidence that unemployment has substantial negative psychological effects that are scarring over life and also potentially self-perpetuating. Therefore it should get greater weighting in policy contexts than for models that just examine narrow financial variables. Below are some ideas on potential policy development.

(i) Bell and Blanchflower have written several papers on responding to unemployment in particular to youth unemployment. In one of the most directly relevant to policy, they list 10 potential policies for the UK environment. These are listed below. It is clear that some of these are more feasible than others in the Irish context. For example, people might find a raising of the school leaving age infeasible but a proxy policy such as the introduction of an Education Maintenance allowance is surely worth debating. Similarly, people may not think a fiscal stimulus (at least at Irish-specific level) is feasible but that does not negate the potential for examining the employment consequences of existing current and in particular capital spending. Also some of the policies below have been features of the Irish environment in various ways including increasing the number of back-to-education places.

a. The government should undertake a substantial fiscal stimulus focused on jobs, as soon as possible

b. Provide large cuts in income taxes and National Insurance Contributions aimed at the low paid and the young. For the unemployed, mortgage interest payments could also be paid by the government in the form of a loan, with the proviso that it would have to be paid back eventually.

c. Increase the education leaving age to eighteen starting in June 1st 2009 or as soon thereafter as is feasible.

d. Provide further encouragement for those in the age range 18-24 to undertake further/higher education by increasing the number of places available

e. Provide further encouragement for those in the age range 18-24 to undertake further/higher education by providing financial inducements for them to do so

f. Expand the numbers of teacher training places as soon as possible with an emphasis on training in further education

g. Do direct job creation through increased investment in the infrastructure with particular emphasis on ‘shovel ready’ projects that could start quickly.

h. Allow public sector and non-profit organizations to fill available vacancies by providing increased funding for two years

i. Temporary, limited and targeted expansion of ALMPs

j. Provide incentives to encourage the use of short-time working and job sharing as alternatives to redundancy and unemployment. These might take the form of time limited tax incentives

(ii) See the session from the 2012 Irish economy conference last year for a range of coherent ideas. The session on early childhood development is also very useful.

(iii) The role of better designed welfare and activation policies drawing from developments in the economics of evaluation is something that should be discussed further. Very few if any of the current government employment programmes have been or can be evaluated formally due to the way they are rolled out. For example, the evaluation of Jobbridge does not contain a sufficiently well-constructed control group to allow us to know what would have happened had Jobbridge not been rolled out. This is a problem across most areas of government intervention in the labour market and it hampers the ability to learn from programmes that are rolled out. The best way to achieve this would be to have someone who knows how to construct a causal evaluation assist in the process of writing the tenders for these evaluations, something that does not appear to happen at present.

(iv) I have posted here on a number of occasions about the potential role of understanding psychology in designing welfare policies and job activation. Many activation policies are based on models of human behaviour that are not grounded in empirical evidence. Denise Hawkes from UCL Institute of Education and others have been conducting very interesting behavioural trials in UK job centres (see recent Stirling conference for summary). This is early stage work but is an obvious direction for figuring out how to make government supports for people who are unemployment more effective and supportive. The redevelopment of FAS/SOLAS and the design of communication about welfare policies, education incentives and so on should integrate this literature.

(v) The key missing aspect from traditional models of job activation is the mental health effect of job loss. I have posted on this here recently  and here. The work of Professor Richard Layard in promoting development of policy around unemployment and mental health has been one of the key breakthroughs in this area over the last decade. From what I can see it has gotten not very much attention in Ireland and it would be worth debating this here a lot more with a view to assessing whether some of the ideas should be implemented.

(vi) More generally, a lot of knowledge gaps exist including basic profiles of the unemployed in Ireland such as their processes of job search. While basic profiling has been taking place, there is not a well-developed model of job search such as could be constructed from the DWP job search study. We also know very little about interlinkages between debt, housing and unemployment though the central bank research is improving the situation in this regard. In general, the data available to study job search in Ireland could be improved substantially with more engagement between policy and academics.

Comments

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14 thoughts on “Irish Unemployment”

  1. Are Bell and Blanchflower aware that the UK budget deficit is still 6 per cent of GDP?

    These proposals, all of which appear to involve increased government expenditure, simply can not be afforded. Period.

    The UK needs to continue cutting government expenditure, not raise it.

    Fortunately, the UK has quite a vibrant private sector and has shown itself capable of reducing unemployment even as government expenditure is cut.

    All this applies to Ireland as well. Although Ireland’s budget deficit is forecast to be 2.7% in 2015, under half that in the U. Kingdom, its debt/GDP ratio is higher, so it too needs to continue cutting government expenditure, at least as a percentage of GDP. The experience of the past few years is that doing this is completely compatible with reducing unemployment. Ireland’s unemployment rate has fallen from 15.1% in June 2012 to 10.6% in December 2014, which very neatly works out as a fall of 4.5% in 30 months, or 0.15% per month. If that continues, it will hit by 5% by end-2017. So, the obvious answer to the question ‘what to do about unemployment’ for both Ireland and the U. Kingdom is ‘carry on as you’ve been doing for the past 2/3 years’.

  2. @JTO
    If the unemployed could eat those wonderful GDP growth rates for breakfast, we would have a very healthy country.
    Waiting until 2017 for breakfast does not sound like much of a proposal.

  3. @Liam Delaney

    The tragic fact of the matter is that there is a significant shortage of housing in Dublin, possibly a shortage of over 50,000 houses. Simply getting on with building these houses could provide tens of thousands of jobs.
    There are thousands of buyers for reasonably priced properties, but one cannot have reasonably priced properties when the existing land owners, including NAMA, want to profiteer on land holdings of zoned land.
    Speculative land profits are more important in Ireland than unemployment.

    On the issue of the health of the unemployed, particularly mental health, nobody in the PS is likely to listen. Generally never having been unemployed, they have no idea whatsoever of the insidious impact of unemployment on the mental health, confidence or future prospects of the individuals concerned or their families.

    While fulling in agreement with the need for stimulus, particularly in the building industry, I have doubts about the value of further academic education a distinct from craft or skill based education.

    On the issue of job bridge and some other schemes, one should never underestimate the willingness of employers, including government, to buy labour as cheaply as possible. The extent to which the job-bridge was abused by both public and private sectors was, as possibly still is, disgraceful.

    For instance, why was there not a provision within job bridge, to ensure that in the case of profitable employers (as measured by their annual returns) to reimburse up to 50% of the standard cost of employing a person on job-bridge.
    Many employers abused the job-bridge scheme, and the unfortunate willing youngster, to the nth degree.
    Job-bridge showed the ugly side of the of the Irish character, and there was and plenty ugly to show.

    The papers this weekend had reports of the government entering pay talks. To me it would make far more sense to spend that money that such pay rises will cost on much needed housing and infrastructure, thereby increasing employment rather than the wages of the those currently employed.

  4. Hi, Liam. Best wishes for 2015.

    Our unemployment issue needs to inverted; we need to discuss both current waged-labour employments and the nature of potential waged-labour employments.

    The essential background to any discussion (just skip all proposals – waste of time) is the entry into the global workforce of tens of millions of asian serfs together with the massive transfer of high-specification technology so as to enable these serfs to produce stuff – most of which has to be exported. So who are all the consumers then? It sure is not the Asian serfs themselves.

    The logic of the arrival of 10s of millions of new low waged-labour persons, is the simultaneous decrease (or loss) in matching number of waged-labour opportunities in developed economies. An extension of the logic would be that, slowlyand inexorably, a supply surplus would develop. That’s THE problem – the over-supply of consumer goods, coupled with modern technology which reduces the need for human hands – aka: waged-labour opportunities. Those pesky Luddites were right all along!

    So, developed economies must now rely more and more on non-tradable service employments and increased levels of employments in CS, education, vehicle testing, water-meter installation, low-level medical and rehab employments, catering and general servile-type employments. These employments cannot, and will never be sufficient to increase consumer demand such that it could ever match supply – except the supply should decrease.

    Think: what policies should Government NOT persist with, nor introduce?

    Do not attempt anything remotely like a ‘fiscal stimulus’
    Do not reduce taxes – re-distribute the tax burden.
    Do not increase any non means-tested benefits nor universal entitlements
    Do not pay any heed to leaders of organized labour, interest groups and lobby groups – they’re all want MORE! Borrowing?

    @ JR: I find it hard to believe that we need 50,000 additional housing units in Dublin, since they already exist – its just that many are currently unfit for human habitation and many more are located in areas at considerable commuting distances from the employment opportunities that are available. Demand for out-of-way habitations must be somewhat negative. Absent draconian negative tax ‘incentives’ the uninhabitated units will not be brought on-stream and what is the likelihood of ‘moving’ employment opportunities closer to the needy?

    Mental health problems associated with unemployment? “Not possible! Nothing to see here. Just move along folks!” So, no need to do anything. Just carry on. Just ignore it. It will go away. Indeed.

    @ joe: This is somewhat crass:-

    ” … if 20% of the population refuse to get off their backsides…”

    Think a bit more meaningfully about the matter. Its very, very unsimple.

  5. @ JTO

    “Are Bell and Blanchflower aware that the UK budget deficit is still 6 per cent of GDP?These proposals, all of which appear to involve increased government expenditure, simply can not be afforded. Period.
    The UK needs to continue cutting government expenditure, not raise it.”

    The reason why the deficit is still 6% is because of wage deflation. The BoE models missed it. Same thing occurring in the US.

    Deflation is on the way unless things change radically. QE is a big part of the problem.

  6. @Brian Woods Snr.
    I apologise for my loose terminology! I believe that my point stands though. Our society has failed to date to incentivise those who don’t work enough. What hope have we in the world you describe?

  7. @ joe: Your comment is noted. Thanks. Brian.

    Little to none! – if’n you’re listed within the 99%! The least worse thing any western developed government can hope to do is to provide an appropriate level of social protection by way of cash payments to ensure its citizens do not experience poverty and destitution. Give them the cash, provided they undergo a robust means-test and if they spend it on trivia – tuff! No whinging tolerated.

    Now, there would be shrieks of horror about a means-test – so it has to be universal – all adults over 16 years! No ifs, buts, exceptions. And leave it to Revenue to conduct. They are very good at this sort of public service.

    There needs to be an automatic built-in stabilizer: if any of the welfare payments are increased (they always go up and folk always want more) then there is an immediate increase in taxation to balance.

    The logic of this is that we have a much more balanced taxation system. Little chance of that. Interesting times ahead.

    Cheers.

  8. @BWS

    http://www.environ.ie/en/Publications/StatisticsandRegularPublications/HousingStatistics/FileDownLoad,27864,en.pdf

    At the end of 2011, there was a social housing waiting list of 98,000, that had increased by 75% since 2008. For the three Dublin council areas the figure came to almost 20,000.
    Assuming that private sector demand would be at least twice that amount that would give a ‘demand’ for about 60,000 in the Dublin area. Satisfying such a demand might leave excess houses that are currently tenanted, but the reduction in house prices that a serious build programme would bring about, would in turn increase house formations for those currently living with parents.
    So, I suspect the Dublin housing shortage that would satisfy existing and potential demand would be close to 50,000. The cost to build including site costs should be, in a well run country, no more than 250,000 each, giving a total capital spend of 12 billion, approx 5 billion for social housing and 7 for private sale that would be fully recouped immediately from purchasers.

    The potential employment from such a programme at, 3 man years per house, would be approx 150,000 man years or about 50,000 per year spread over three years.

    All that this requires is a 5 billion public spend, with working capital funding for the private housing balance. Even at that a good piece of the public spend would be recouped, through savings on private rental subsidies etc.
    The funding for the private house building could be provided by pension finds, similar to what Irish Life (remember them ) did back in the 1960s.

    The critical issue is the cost of land. Is the priority, to enrich holders of building land, or to house the people of this country at reasonable cost?

    From my read, the land holders and land speculators have won the day hands down, with full government backing.
    Their profit and potential profit trumps all.

    I agree fully with the points you make re the shifting of production to low cost semi serf-like locations, and about over production in general.
    Globalization should not have been conceded, without the insistence on minimum standards. But globalization was great for capital, and capital always gets its way.
    Western unemployment is the price of cheap goods from low cost locations.

  9. @ JR
    “But globalization was great for capital, and capital always gets its way.”

    True but capital always messes it up as well. There is just too much of it now and not enough real world to absorb it. 12 trillion QE dollars looking for yield. The volatility is violent as last week’s CHF excitement showed. Economics can’t keep up.

    The euro looks destined for deflation- QE might bring the exchange rate down but no risk sharing so no resolution.

    Loads of crap credit underwriting is laying the ground for the next crash which could well be existential. Ultimately the financiers are playing with other peoples’ money and they won’t keep on getting it to manage if they blow the system up again.

  10. Jobs are the core issue for the Government’s propaganda machine and last Wednesday there was a so-called “Jobs Cabinet” which approved the bringing forward of a full employment target from 2020 to 2018.

    This also required a change in the view of the Government on the number of jobs lost during the recession, which in an economic strategy document published in Dec 2013 was put at 330,000 in the period 2008-2012 inclusive.

    Enda Kenny announced on Jan 13, 2015 that 250,000 jobs had been lost in 3 years, presumably 2008-2010, and he said on Jan 14 that all those jobs would be replaced by 2018.

    CSO data suggests 299,000 in 2008-2010 and 307,000 in 2008-2012.

    Kenny in a speech on March 13, 2014 referred to 330,000 lost jobs and 10 months later it was 250,000.

    On a government press release there was no explanation of what happened the 80,000 jobs and it wasn’t apparently raised at a press conference on Jan 14.

    I said in a request for details to the Dept of Jobs & Enterprise that the information must be to hand unless ministers were asked to approve a target change without background information.

    In an illustration of how little has really changed since the bust, a full employment target was brought forward with no information on what the assumed unemployment and participation rates would be (the latter is down about 3% compared with 2007).

    The lower 250,000 total was needed to meet the commitment of replacing all jobs that were lost and to make the jobs target potentially credible.

    The problem with the addiction to spin in a system with little evidence-based policy making, is that downsides are ignored.

    For example Ireland has about 4,000 exporters while Denmark has about 30,000. More here:

    http://www.finfacts.ie/irishfinancenews/article_1028622.shtml

    There are no longitudinal studies done and Richard Bruton’s latest proposal is to give a refund of taxes paid of up to 6 years to encourage startups – that maybe fine as a measure but it’s not a strategy and dependence on US firms is set to continue despite low taxes and lots of supports.

    On activation schemes, there are 28,000 in back to education courses – 90% come from the Live Register and return to it during holiday periods. According to the Dept of Social Protection, about 60% either drop out from courses or return to the Live Register when courses are completed.

    Giving courses is a big business but how useful or not they may be is an unknown.

  11. Further to the post above, I received some detail from the Department of the Taoiseach, which acknowledges that jobs lost in March 2008- March 2011 exceeded 300,000.

    The total of 250,000 to produce a 2018 full employment target was arrived at – using a) one survey that only covers part of the workforce b) Live Register data that does not track changes in employment.

    Ireland: Government explains how it understates recession job losses

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