Tackling Ossified Oligopolies, and other God’s work, on one side of the Irish Sea

Before Christmas, John Fingleton tweeted a link to a talk by John Kingman, outgoing second secretary of the Treasury.

In the speech [here] Kingman reviews what the Treasury had achieved to improve the performance of the British economy over the decades since Nigel Lawson’s 1984 Mais lecture, which argued for a switch to have microeconomic policy seek to promote growth (supply side) and macroeconomic policy control inflation (demand side), a reversal of the post-war policy. He estimates less than 10% of Treasury staffing was subsequently devoted to supply-side policy and the talk discuss the institutional challenges of internalising the new supply-side role.

He reckons the successes of supply-side policy were in
– fighting bad ideas (“God’s work”): not to prop up failing industries
– labour markets: improved ratio of job losses to output loss
– competition policy: the 2002 Competition Policy and the decisions to introduce criminal penalties for cartels, and to take Ministers mostly out of merger decisions (Ministers are mostly captured by sectors whose names appear in their departmental title)
– science, innovation and universities; he points out that the UK has far more top-ranked universities than all of the rest of Europe and the whole of Asia.

Where does he see remaining supply-side problems? In
– planning and housing, where the public has not been persuaded to modify land policy
– education and skills (other than elite universities) where spending is high but outcomes “mediocre”
– the “absurd cost” of infrastructure: he doesn’t use this example but the cost of an additional runway at Heathrow exceeds that at Dublin by a factor of one hundred! (€0.25bn versus €25bn.)
– (obviously) migration.

In discussing the failures, Kingman distinguishes areas where the solution is known but the public has not been convinced (planning, migration), and ones where the ways to ‘crack’ the problems are just not known (effective non-elite education, distinguishing between investments that will prove to be grand projets rather than plonkers).

A comparable review of policy successes and failures Ireland would make for valuable reading but, at a high level, some of the UK’s successes are patently not ours (elite universities, vigorous competition enforcement – tackling ossified oligopolies), while some of their failures may have been avoided here (migration) to date. How to fit the enclave MNC sector into an evaluation is not clear. Lots of supply, albeit exaggerated, but possibly disguising problems in the non-MNC economy.

PS Some similar themes (from a regulatory perspective) were discussed by John Fingleton in a talk last December to the IIEA here.

Household formation among young adults

A guest post from Reamonn Lydon and Apostolos Fasianos of the Irish Economic Analysis division here at the Bank.

The overall population increased by 4% between 2008 and 2016. At the same time, the number of young adults aged between 20 and 34 fell by a quarter– from 1.15 million to 860 thousand (see Table 1. See also the excellent study by Glynn, Kelly and MacEinrí (2015) on migration patterns for this group).

Table 1 CSO population estimates (Table PEA01)
 (`000s) 2008 2016 % change
Age <20 1209 1327.4 9.8%
20-24 373.6 226.8 -39.3%
25-34 777.8 633.6 -18.5%
35-44 662.2 733.2 10.7%
45-64 978.9 1127.2 15.1%
65+ 483.7 625.5 29.3%
4485.2 4673.7 4.2%

The large decline in the 20-34 population means that housing demand will be lower than the past.  However, there have also been significant changes in the household formation patterns of this group which are relevant when it comes to thinking about housing demand in the future.  As the figure below shows, just before the property crash just over 30% of young adults lived with parents, but by 2016 this had risen 37%.  Taking into account the population drop, this is around an additional 25,000 young adults versus the situation in 2006, and just under 320,000 in total living with parents in 2016.

F1Census data for 2016 is not yet available to calculate the latest figures, so we have drawn on the QNHS and Household Finance and Consumption Survey (HFCS, 2013) to try and complete the picture to 2016.  The HFCS is particularly useful as it allows us compare Ireland with other countries (Figure 2).  Ireland looks similar to both the EU and US (although the US data is for 18-34 year olds living with relatives, not just parents), but is somewhat higher than the UK. We know, however, that UK third level students are more likely than their Irish counterparts to live away from home.  Southern European countries, with relatively high rates of youth unemployment – such as Spain, Portugal and Italy tend to have a higher proportion of young adults living with their parents.


What do these figures mean for housing demand?

The answer depends on the extent to which you believe the shift towards more young adults living at home is a cyclical or a structural change. Certainly, there is a slow-moving cyclical part to it – the proportion rose as the employment prospects for this group worsened and young people stayed on in education (Conefrey, 2011).  The CSO also reported a sharp drop in the proportion of 19-24 year-olds in shared accommodation (i.e. renting), from 22 to 18% between 2006 and 2011.  So there may be a jump in demand in the short term, because not only do the delayed entrants want to enter the market after a (cyclical) delay, but those who are younger will now start forming households at a younger age.  There is already some evidence of this in the 2016 QNHS, which shows the percentage of 20-24 year olds living at home falling for the first time in almost 10 years, from 70 to 68%.

However, there might also be structural changes to consider. For example, if the easy credit of the bubble years meant that buyers got on the housing ladder at a younger age than previously, and this has since been reversed, then the ‘pent-up’ demand might not be so large.  We know that the average age of FTBs has risen in recent years, having fallen during the boom.  In this case, young adults could continue to form households at a rate similar to what we are now seeing.

In all likelihood, the shifts we have witnessed are a mix of cyclical and structural changes. However, how much is cyclical does matter. As Table 1 showed, there were just over 860,000 20-34 year-olds in 2016. Ignoring immigration flows which could increase the size of this age cohort further, each 1% fall in the proportion living at home means an additional 8,600 individuals looking to rent or buy. This is a large figure in the context of current estimates for annual housing demand, which range from 20,000 and 40,000 units.

Central Bank – Revisiting the 26% Growth Debate

Readers might be interested in the first quarterly central bank bulletin of 2017.

Unsurprisingly (and importantly) the bulletin focuses on the downside risks to the economy associated with Brexit, which are well worth reading.

But something else caught my attention whilst reading the piece. They briefly return to the 26% growth rate and conclude:

the large and increasing share of intangible assets, mainly held by multinational firms, and the assets of Irish based aircraft leasing firms can use headline investment figures to diverge from underlying investment trends.

This would imply, officially at least, that the role played by contract manufacturing, intangible assets and aircraft leasing are recognised as the core determinants behind the 26% growth rate, and leprechaun economics?

Screen Shot 2017-01-26 at 17.02.10

Job Opportunity with the Fiscal Council

The Fiscal Advisory Council are currently looking to fill an economist role.  The position is at AP level and the closing date for applications is Thursday 9th of February. Full details of the post are available here.

Maternity Care: What do women want?

In 2012, the Irish government outlined a strategic framework for reform of the health service. Ensuring patients are treated at the lowest level of complexity is a major tenet of this reform. Within the Irish health care system, maternity care remains heavily medicalised. Depending on obstetric risk, maternity care may be provided in one of two locations at hospital level: a consultant-led unit (CLU) or a midwifery-led unit (MLU). Care in a MLU is sparsely provided in Ireland, comprising as few as two units out of a total 21 maternity units. Given its potential for greater efficiencies of care and cost-savings for the state, there has been an increased interest to expand MLUs in Ireland. Yet, very little is known about women’s preferences for midwifery-led care, and whether they would utilise this service when presented with the choice of delivering in a CLU or MLU.

A recent study sought to involve women in the future planning of maternity care by investigating their preferences for care and subsequent motivations when choosing place of birth. It is the first qualitative study to explore women’s preferences for alternative models of maternity care in Ireland. Overall, the results suggest that women may prefer MLUs when co-located with existing CLUs. While safety concerns largely influenced women’s preferences, the results also suggest that women do not have a clear preference for either model of care, but rather a hybrid model of care which encompasses features of both consultant and midwifery-led care. This suggests that the DOMINO (Domiciliary Care In and Out of Hospital) scheme may be preferred by maternity users as it closely resembles the preferences revealed in this study.

The full paper has recently been published in Health Policy and can be accessed here. This study precedes a broader, quantitative exploration of demand for alternative models of maternity care. The results of which will inform policymakers on whether an expansion of midwifery-led care reflects demand and value for money.

I would like to acknowledge all my co-authors on this paper, in particular, Dr. Christopher Fawsitt who undertook this work as part of PhD dissertation, and Prof. Richard Greene, the clinical lead on this project. This research was supported by the National Perinatal Epidemiology Centre of Ireland.