Economic history Economics Higher education Teaching Uncategorized

Tom Kettle, 1880 – 1916

In 1909 Tom Kettle was appointed the first Professor of the National Economics of Ireland at University College, Dublin.
He was in Belgium running arms for the National Volunteers when the war broke out in 1914. What he perceived as the barbaric Prussian assault on European civilization prompted him to apply for a commission with the Royal Dublin Fusiliers, which he was awarded in 1916.
He was killed in action at Ginchy (Picardy) during the Battle of the Somme on 9th September 1916.
In the spring of 2006 the late Gerry Barry, the RTÉ broadcaster, organized a public meeting (in the former House of Lords chamber at College Green) to mark the 90th anniversary of Kettle’s death. He asked me to contribute a piece on Kettle’s work as an economist.
Ten years on, and a century after Kettle’s death, I thought readers might be interested in the brief essay I wrote for the occasion.

More details of his life are available in the excellent Wikipedia article on him:

Bailout Banking Crisis Economic Performance EMU European economy Monetary policy World Economy

Canada Day

Yesterday, the First of July, was Canada Day.

Discussing  the crisis in the Eurozone with some visiting Canadian relatives led to the question How stable is the Canadian currency union?

At first sight it seems to be much more stable than its European counterpart. The Canadian banking system is renowned for its solidness. It is dominated by five national banks that operate coast to coast, supervised by the much-admired Bank of Canada.  There is a large national budget that includes important elements of inter-provincial fiscal equalization. Internal labour mobility is relatively high.

But on the other hand the provincial governments are not constrained in their borrowing, there are enormous differences between the economic structures of the provinces, and there is always the Quebec question.

In fact, to a surprising extent, the stability of the Canadian union appears to depend on the fact that, as the author of this article puts it,”there are no Greeces here”.  He draws attention to flaws in the design of the Canadian currency union that could come home to roost some day.

Economics Political economy Teaching Uncategorized

Ideological Differences between Economists

Scott Sumner provides a valuable discussion of the shifting ideological biases of American economists in this piece.

Inequality Social conditions Uncategorized

Housing the Homeless

James Surowiecki has an interesting piece on housing the homeless here.

Economic history Environment Uncategorized

Climate Change

The Intergovernmental Panel on Climate Change (IPCC)’s Fifth Assessment Report (AR5) is available here.
Richard Tol’s critique published in the Financial Times is available here.


Measuring Unemployment

My recent post on the results of the latest Quarterly National Household Survey (QNHS) provoked some discussion of the Irish unemployment data. I thought it would be helpful to follow up by comparing the evidence available from three measures of unemployment, namely, the Live Register (LR) and two series derived from the QNHS.

The LR data are based on administrative records of those ‘signing on’ for various entitlements, principally Jobseeker’s assistance and benefit. It also includes some people who are working short-time, as well as some seasonal and casual workers who are not fully unemployed, and some people gaining credited social welfare contributions who may not be actively seeking work. In fact Central Statistics Office in its monthly release of the LR figures warns that they are not designed to measure unemployment.

The QNHS is designed specifically to measure employment and unemployment. Similar surveys are conducted across the EU with the aim of providing internationally-comparably measures of labour market performance. The widely-quoted measures of employment and unemployment from the QNHS are based on International Labour Office (ILO) definitions. To be ‘ILO unemployed’ a person must in the week before the survey be without work but available for work and have recently taken specific job-search steps.

A separate measure of unemployment is also published in the QNHS, based on the concept of ‘Principal Economic Status’ – that is, what the respondent considers his or her ‘usual situation with regard to employment’ .

The following Figure shows how these three measures of unemployment have behaved since 2007.

(The LR figures are published monthly. Quarterly averages have been calculated for comparability with the QNHS data. The figures have not been seasonally adjusted.)

The most important showing is the broad consistency of the three measures, especially with regard to changes in the level of unemployment. There is no evidence of a trend in the divergences between the series.

As is to be expected the LR is consistently higher than the ILO measure of unemployment. The excess has varied from a high of 68 per cent in 2007 Q1 to a low of 36 per cent in 2012 Q2. There was a marked downward trend in the ratio between 2008 and 2012 – in times of rising unemployment the gap between the two measures narrows, but as the labour market improved from mid-2012 onwards the ratio has risen. ILO unemployment has fallen by 71,000 since mid-2012, the LR by only 54,000.

The PES measure falls consistently between the two other series, but closely tracks their movements.

In recent years both here and in the US increased attention has been devoted to ‘discouraged workers’ – people who are no longer seeking employment because they believe there are no jobs available. In response to the desire to improve the measurement of unemployment during the recession, a new series on the ‘Potential Additional Labour Force’ (PALF) has been presented in the QNHS. This includes ‘persons seeking work but not immediately available’ and ‘persons available for but not seeking work’.

Since it was launched, the PALF series has followed the same broad pattern as the three measures of unemployment shown in the Figure. Over the course of 2013 the numbers include in the PALF have fallen from 60,000 to 49,300.

Much further analysis could be performed on the these data. It would be interesting to look at the series by age and sex, for example. But suffice for the moment that all the available evidence paints a consistent picture of recent developments in the Irish labour market.

Economic Performance Uncategorized Unemployment

Some Very Positive Labour Market Numbers

The results of the Quarter 4 2013 National Household Survey are available here.
The year-on-year increase in the numbers at work of 3.3% is all the more remarkable in view of the continuing decline in public sector employment.
The overall unemployment rate (seasonally adjusted) fell from 12.7% to 12.1%, and the long-term rate from 8.2% to 7.2%.

Economics European economy Fiscal Policy Uncategorized

Google’s Tax Planning

The Dutch Sandwich and Double Irish figure prominently in this FT article about Google’s tax returns for 2012.
It seems that Google Netherlands Holdings, which represents the Dutch part of the sandwich, received €8.6bn in royalties from Google Ireland Ltd last year.

Social conditions Uncategorized Unemployment

Suicide and the Recession – again

Seán Ó Riain’s post and links to the recent British Medical Journal article on suicide and unemployment call for an extended comment, although, as Brian Lucey points out, the topic was discussed in a recent post.

The estimates of the number of suicides attributable to the recession in the BMJ article are based on the trend in suicide rates over the eight years 2000 to 2007 pooled over 54 countries compared with the rates recorded in the years 2008, 2009, and 2010. The discrepancies between the actual and extrapolated rates were used to infer the impact of unemployment: The authors summarize their approach as follows:

To examine whether suicide rates rose more in countries with worse economic downturns, we used Spearman’s correlation coefficients to investigate the association between suicide rate ratios in 2009 and percentage point changes in unemployment rates between 2007 (the baseline year) and 2009 (unemployment rates (in %) in 2009 minus unemployment rates (in %) in 2007 across study countries.

As may be seen from Figure 1 the Irish suicide rate hardly changed between 2007 and 2010 – rising from 10.5 to 10.9  When deaths “due to external causes of undetermined intent” (a category generally viewed as referring predominantly to suicides) are included, the rate actually fell from 13.2 in 2007 to 12.7 in 2010. Looking beyond 2010, using preliminary data based on year of registration, both measures of suicide were stable in 2011 and 2012.

Taking a long-run perspective, the econometric evidence contained in Walsh and Walsh, 2011 shows that the Irish suicide rate has been only weakly correlated with the unemployment rate. Other factors seem to have been at work.  For example, the suicide rate rose sharply during the period of falling unemployment in the second half of the 1990s, which coincided with a surge in per capita alcohol consumption. The suicide rate declined during the first half of the noughties – particularly among younger males – coinciding with the start of a steady decline in alcohol consumption.

The following Figure shows the suicide and unemployment rates since the 1960s and brings out the lack of correlation between them. In particular, the recent surge in unemployment seems to have had a surprisingly weak impact on the suicide rate.
While it might be claimed – as is done in the BMJ article – that had unemployment not risen, the suicide rate would have fallen below its present level, but extending the earlier econometric work down to 2012 suggests that the influence of the unemployment rate on suicides has remained relatively weak and confined to males aged 35-54. These age groups account for about 30% of all suicides. Suicide among males in other age groups and among females, which account for 70% of the total, do not appear to be significantly influenced by the unemployment rate.

We must be careful not to attribute too much of our current suicide problem to the downturn in the economy and / or the measures that have been taken to correct our fiscal imbalances.

Economic Performance Unemployment

Good News on the Labour Market

The CSO released the results of the Quarterly National Household Survey for Quarter 2 2013 this morning, together with their population estimates for April of this year and the components of population change over the previous twelve months.

The news is mostly positive, showing clear evidence of a recovering labour market.

The level of employment has risen, with full-time employment up for the first time since 2008. Private sector employment is growing fairly strongly, offsetting the decline in public sector numbers.

Although still very high, overall unemployment is down and long-term unemployment has fallen as a proportion of the total.

The population increased only marginally between April 2012 and April 2013. The slowdown in population growth was due to (i) the continued high level of net emigration, with an increase in the outflow of Irish nationals, and (ii) a sharp fall in natural increase, due to the drop of almost 5% in the number of births.

Economic growth Fiscal Policy Uncategorized Unemployment

Successful Completion of Tenth Review of Troika Programme

In a statement issued at the end of this Review yesterday, we were given the by-now familiar plaudits for achieving various benchmarks. Going forward, ‘strict implementation’ of this year’s budgetary targets is urged.

The gravity of the unemployment situation is acknowledged. ‘Swift action needed to deal with unemployment’ the newspaper headlines proclaimed. The onus for this is placed on the Irish government and a familiar list of policies proposed, including for example ‘the need for enhanced engagement with the unemployed and the opening up of competition in sheltered sectors like legal services’.

I wonder how much our readers think increased competition between lawyers will contribute to lowering our unemployment rate.


Keynes at UCD

This week marks the eightieth anniversary of Keynes’s inaugural Finlay lecture at UCD.

Charles Lysaght has a background piece about it in today’s Irish Times.

Economic growth Economic Performance EMU European economy Fiscal Policy Political economy Uncategorized

‘Panic Driven Austerity’

Paul de Grauwe and Yuemei Ji have an interesting commentary on the causes and effects of austerity here.


Trends in Living Standards

Readers might be interested in a medium-term perspective on Irish living standards.

Eurostat compiles a series on GDP per person measured in PP$. The values for each country are expressed relative to the average for the EU27 or EU15. This provides a time series that can be used to gauge the trend in relative living standards before and during the recession.

My first graph shows the values for Ireland, Spain, Portugal and Greece from 1999 to 2011.
As usual a caveat attaches to the use of GDP data for Ireland, where the gap between national income and GDP is unusually large and has been growing. In 1999 national income / GDP ratio was 86 per cent, by 2011 it had fallen to 80.7 per cent. Thus not only does the use of GDP tend to overstate the level of Ireland’s standard of living, it also distorts the trend. For this reason I include a series for Ireland that adjusts the GDP data downward by the national income / GDP ratio

The graph shows that according to GDP Ireland started from a position about 10 per cent above the EU15 average in 1999 and zoomed ahead to enjoy livings standards over 30 per above the average by 2007. According to the more realistic measure based on national income, Ireland reached the EU15 average in 2002 and was about 15 per cent above it by 2007. The other three countries achieved some modest catch-up over these years.

All four countries suffered a marked decline in living standards relative to the EU15 average after 2007. The scale of the decline is surprisingly uneven, with Ireland (on the GDP measure) suffering a 14 per cent drop from 2007 to 2011, while the drop in Portugal was only 1.6 per cent, 4.9 per cent in Spain and 8.0 per cent in Greece.

If we focus on the national income measure for Ireland the drop in living standards was almost 20 per cent. This implies that we are now one fifth worse off relative to the EU15 than we were four years ago. Our standard of living has fallen below the EU15 average for the first time since 2001.

The second graph compares Ireland with the UK. When the comparison is based on Irish GDP, it may be seen that we went way ahead of the UK between 1998 and 2007. After 2007 the Irish relative position deteriorated but by this measure we still remained almost 20 per cent ahead of the UK in 2011. When the comparison is based on national income the Irish performance relative to the UK is much less impressive. We drew ahead briefly between 2005 and 2008, but are now some 5 per cent behind.

Economic Performance EMU European economy

Inflation in Ireland and the Euro area

In an earlier post I drew attention to the extent to which Ireland’s recent apparent competitive gains reflected the weakness of the euro relative to the dollar and sterling.

Another component of competitiveness is, of course, our rate of inflation relative to that of the Euro area as a whole.

It is therefore of interest to put on record the inflation rates in Ireland and in the Euro area since 1999.

This is facilitated by the European Central Bank’s website, from which monthly data on the rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) may be readily downloaded.

The following Chart tells the story.

It may be seen that for the first five years of the new monetary union Ireland’s inflation rate was – contrary to expectations – significantly higher than the Euro area average.  This resulted in a significant loss of competitiveness relative to the rest of the Euro area.

For the years between 2004 and 2007 our inflation rate behaved as expected in a monetary union and differed little from that of the Euro area average.

During 2009 and 2010 we experienced more deflation than the rest of the Euro area. This helped restore some of the competitiveness we had lost in the early years of membership and the ‘internal devaluation’ was hailed at the time in the belief that it would play a big role in getting the economy moving again.

Since 2010, however, our inflation rate has been climbing back up towards the Euro area average.

It would seem that any further ‘restoration of competitiveness’ will require further weakness of the euro on the foreign exchange markets.

Economic Performance EMU European economy Uncategorized

Regaining Competitiveness

The orthodox view is that enhanced competitiveness should play a significant part in Ireland’s (and other euro area countries’) recovery from recession.

In the March 2012 “Review Under the Extended Arrangement” the IMF team states that:

“Ireland’s economy has shown a capacity for export-led growth, aided by significant progress in unwinding past competitiveness losses.” (my italics)

The evidence does indeed point to a significant improvement in Ireland’s competitiveness between 2008 and the present.  The following two graphs show the ECB’s ‘Harmonized  Competitiveness Indicator’ (HCI) based on (a) Consumer Prices and (b) Unit Labour Costs.  (A rising index implies a loss of competitiveness.) Both graphs show a competitive gain since 2008, with second  showing the more dramatic improvement. However, this measure is affected by the changing composition of the labour force, which became smaller but more high-tech as a result of the collapse of many low-productivity sectors during the recession.

Concentrating on the HCI based on the CPI, the Irish competitive gain has still been impressive – our HCI fell 17% between mid-2008 and mid-2012, giving us the largest competitive gain recorded in any of the 17 euro-area countries over these years.  Greece, at the other extreme, recorded no change in its HCI, Portugal fell only 4.5%, Spain 6.6%, Italy 6.8%.  So by this measure Ireland is some PIIG(S)!

However, we need to dig deeper and understand why Ireland’s HCI has fallen so steeply.

Part of the story – the part on which some commentators dwell – is that early in the recession the Irish price level and Irish nominal wages fell. From a peak of 108 in 2008 the Irish Consumer Price Index fell to 100 in January 2010. But it has started to rise again – by mid-2012 it was back up to 105. The fall in the Harmonized Index of Consumer Prices has been even less impressive – from a peak of 110 to a low of 105 and now rising back to its previous peak.

Wages are more important than prices as an index of competitiveness because price indices are influenced by indirect taxes and include many non-traded services and administered prices. But Irish nominal wages tell much the same story as the price indices. The index of hourly earnings in manufacturing peaked around 106 at the end of 2009 (2008 = 100) and then fell to a low of 102 in 2011, where it appears to have stabilized.  Even in the construction sector, where employment collapsed in the wake of the building bust, wage rates declined only 6 per cent between 2008 and 2011.

Falling wages and prices are in line with what many commentators thought would happen after the surge in unemployment in 2008.  Widely-publicized wage cuts in the private and public sectors were seen as part of the ‘internal devaluation’ needed to rescue the Irish economy from the recession.  It was argued that this was the only way we could engineer a reduction in our real exchange rate given our commitment to the euro. (Paul Krugman likes to refer pejoratively to an ‘internal devaluation’ as simply ‘wage cuts’.)

However,  the Irish wage and price deflation has not been very dramatic and seems to have stalled in 2011, even though the unemployment rate continues to climb.

So why has Ireland’s competitiveness improved so sharply since 2008 if the ‘internal devaluation’ has been so modest?  The answer, of course, lies in the behaviour of the euro on world currency markets and the fact that non-euro area trade is much more important for  Ireland than for any other member of the EMU.

This can be seen by looking at the HCI for the euro area as a whole.  The euro area HCI fell from 100 in mid-2008 to 84.7 in mid-2012 – almost as big a fall as was recorded for Ireland and far higher than that recorded in any other euro area country.

The paradox that the euro area HCI has fallen much further than the average (however weighted) of the constituent EMU countries is explained by the fact that for each individual country the HCI is compiled using weights that reflect the structure of that country’s total international trade, but for the euro area as a whole the weights reflect the only the area’s trade with the non-euro world.

In its notes on the series the ECB draws attention to this:

“The purpose of harmonized competitiveness indicators (HCIs) is to provide consistent and comparable measures of euro area countries’ price and cost competitiveness that are also consistent with the real effective exchange rates (EERs) of the euro. The HCIs are constructed using the same methodology and data sources that are used for the euro EERs. While the HCI of a specific country takes into account both intra and extra-euro area trade, however, the euro EERs  are based on extra-euro area trade only.” (my italics)

It is understandable that Ireland should show a large competitive gain by euro area standards as the euro declined on world markets after 2008 because non-euro area trade is far more important to Ireland than to any of the other 16 members of the EMU. A fall in the dollar value of the euro does nothing to make France more competitive relative to Germany, or Greece relative to either of them, but it does a lot for Ireland relative to its two most important trading partners – the UK and the US.

As a consequence, the decline in the value of the euro on world currency markets, and especially relative to sterling and the dollar, has had a much larger effect on our competitiveness than on that of any other euro area country.

The following graph shows the USD / EUR exchange rate and Ireland’s HCI since 2008.  It does not take any econometrics to convince me that the main driving force behind Ireland’s competitive gain has been the weakness of the euro.  Undoubtedly a more sophisticated treatment, including the euro-sterling and other exchange rates of importance to Ireland – duly weighted – would show an even closer co-movement.

This should alert us to the point that Ireland’s much-praised recent competitive gain has been due more to the weakening of the euro on the world currency markets than to domestic wage and price discipline.

No doubt it could also be shown that a significant amount of the loss of competitiveness in the years before 2008 was due to the strength of the euro.

The fault – and the blame – lay not with us but with the far-from-optimal currency arrangement under which we labour.

Continuing gains in  competitiveness would therefore seem to depend more on further euro weakness than on the process of ‘internal devaluation’.  Should this have been a condition of our Agreement with the Troika?

Economic Performance Higher education Social conditions Unemployment

Measuring Youth Unemployment

The problem of youth unemployment has rightly been highlighted as one of the major issues facing European countries today.  The newspapers have fastened on the shocking statistic that the unemployment rate among Spaniards and Greeks aged 15 – 25 is about 50 per cent, while the rate for the EU as a whole is about 20 per cent.  These are alarming numbers, but they are also somewhat misleading.

As Stephen Hill pointed out in a piece in the Financial Times on June 24th, the unemployment rate may not be the best measure of labour market conditions among young people who have opportunities to stay in the educational and training systems rather than entering a depressed labour market.  For this reason, an alternative measure, the unemployment ratio, has gained currency.

The conventional unemployment rate is  the numbers ‘unemployed’ as a proportion of the ‘labour force’.  The ‘labour force’ is the sum of the employed and unemployed.  The ‘unemployed’ are those actively seeking work, but not at work. (For young people it is of interest to break unemployment down into those ‘looking for first regular job’ and those who are ‘unemployed having lost or given up previous job’.)

The problem with using the  unemployment rate to measure labour market conditions among young people is that the denominator does not include those who are in the educational system or on full-time training courses.  During a recession, the higher the proportion of a youth cohort that stays on in school or college or in training, the smaller the labour force and the higher the unemployment rate. This is perverse.

By using the whole cohort as the denominator, the unemployment ratio avoids this pitfall and it may be argued that it therefore provides a clearer picture of hardship being caused by the lack of employment. (Of course this is subject to the reservation that increased educational participation may involve putting square pegs in round holes, with some young people taking courses in which they have no interest.)

The limitations of the unemployment rate as a measure of labour market conditions among the youth population is acknowledged by Eurostat, who now publish both the ratio and the rate for the population aged 15-24.  (Their recent figures for Ireland for 2011 are low and may not reflect the latest Census returns.)

The distinction between the unemployment rate and ratio certainly matters.  Data in the recently-released 2011 Census of Population volume This is Ireland Part 2 show the population classified by ‘principal economic status’. These reveal an unemployment rate of 38.7 per cent among the population aged 15-24 compared with an unemployment ratio of 14.2 per cent. While the ratio of 14.2 per cent gives no grounds for complacency, it is less alarming than the headline rate of almost 40 per cent.

It is perhaps even more important to note that the unemployment ratio has not risen as dramatically as the unemployment rate since the onset of the recession in 2008. The Figure displays the three concepts based on the 2006 and 2011 Census data.

(The Table at the end provides more details.)

Whereas the unemployment rate rose by 140% the ratio rose by 90%.  Thus, the rate tends to overstate both the level of unemployment among young people and the rate at which it has risen.

It may, however, be objected that the unemployment ratio includes all those who are not in the labour force in the denominator but excludes discouraged workers and similar forms of disguised unemployment from the numerator.  This bias would certainly be significant among older workers, who are more likely to cease looking for work and to drop out of the labour force because no jobs are available.  Its effect on the youth data, however, is smaller because labour force categories other than ‘employed’, ‘student, and ‘unemployed’ are relatively unimportant among the young.  In 2011 less than 2 per cent of population aged 15- 24 are classified as ‘looking after home/family’!

None the less, to take account of ‘dsicouraged workers’ it is worth looking at another concept that has gained some currency .  This is the NEET ratio. It refers to the proportion of the population that is Not in Employment, Education or Training.  To calculate this ratio for Ireland I have assumed that those in ‘(full-time) training’ are classified as ‘students’ in the Census.  The resulting ratio must, by definition, fall between the unemployment ratio and the unemployment rate.  From the Figure we can see that it lies closer to the unemployment ratio. Moreover, it has risen less rapidly than either the unemployment rate or ratio.   In 2011 the NEET ratio was ‘only’ 65 per cent above it 2006 level.

It is striking that the widely-used unemployment rate is so much higher, and has risen so much more, than the alternative – and arguably better – measures of the situation in the youth labour market.

The reason why the unemployment rate overstates both the level and rise in Irish youth unemployment is the high level of educational participation and its marked increase over the past five years. The proportion of the 15-24 year-old population in the educational system rose from 50.1 per cent in 2006 to 60.5 per cent in 2011.  While not all of the additional years of schooling will be as productive as we would wish, being in the educational system is less wasteful than being unemployed.  This aspect of the adjustment to the present crisis is concealed by the conventional youth unemployment rate.

None the less, we cannot lose sight of the collapse of employment among the youth population.  In 2006 39.5 per cent of the population aged 15-24 was in employment.  By 2011 this percentage had fallen to 22.5.  Among those aged 20-24 the rate declined from 60.0 to 39.0.  While the youth unemployment crisis may not be as severe as suggested by the headline youth unemployment rate, it is a crisis.

Economic Performance EMU European economy

Labour Costs

The question of achieving an ‘internal devaluation’ has been raised in a late contribution to the previous thread.  It deserves more attention than it tends to receive on this site.

The phrase refers to improving competitiveness in the absence of a national exchange rate by reducing costs and prices relative to those of competitor countries.

Labour costs are a major component of domestic costs and one over which we retain ‘sovereignty’.

In March Eurostat published some relevant data on hourly wage costs. (Today’s Irish Independent carries a summary of the report.)

In 2011 Irish hourly labour costs were €27.4, which was 99.3 per cent of the Eurozone (EZ) average of €27.6.  In 2008 (the peak year) Irish labour costs were 105.7 of the EZ average, so there has been some improvement in this measure of our competitiveness.

However, Irish costs remain much higher than those in several EZ countries.  Here are some relevant comparisons: Spain €20.6, Slovenia €14.4, Portugal €12.1 and Estonia €8.1.  Outside the EZ the UK figure is €20.1, while the US Bureau of Labor Statistics gives a figure of $34.2 for hourly labour costs in US manufacturing in 2010 compared with $36.3 for Ireland.

Obviously all EZ countries cannot gain competitiveness relative to each other by reducing labour costs, although the EZ as a whole could become more cost-competitive relative to the rest of world by this strategy.   However, I think it is clear that we would have to wait a long time to see any dramatic results from this source either in Ireland or in the EZ as a whole.

Economic growth Economic history Economic Performance Political economy Social conditions Uncategorized Unemployment

‘Tis the Season to be ….

… happy!

So I thought I would share my thoughts on how the Irish are faring on this front.


The Future of the Euro

On the afternoon that marks the beginning of the end of the Berlusconi era in Italy,  Gideon Rachman’s piece in today’s FT seems no more than an acknowledgement of the realities now facing us.


Human Development Index

The UNDP has just released its 2011 Human Development Report.

I hope we shall all be cheered up to see that Ireland has moved up the league table over the years and now ranks seventh in the world on their Human Development Index.

Banking Crisis Economic Performance EMU

Eurozone Prospects

Many will have heard Alan Ahearne on Morning Ireland explain why we should try to work our way out of the crisis by ‘sticking to the plan’.  He clearly believes that the Eurozone will survive in its present form and that the costs of Ireland defaulting and/or unilaterally leaving the currency union would far outweigh the benefits.

In their recent ESRI publication, John FitzGerald  and Ide Kearney set out in some detail why they believe the Irish debt problem is manageable and why we should should stick to the plan.  This was already posted by Philip Lane and has been discussed here.

Nouriel Roubini, on the other hand, believes that ‘sticking to the plan’ has no chance of working in Greece, so it should organize an orderly default and re-introduce the drachma. Some of the arguments he makes are compelling and many of them apply with some force to Ireland, especially the difficulty of restoring competitiveness and growth through a deflationary internal devaluation.

We need to evaluate the prospects for the Eurozone and our place in it.


Bond Yields

I am surprised at the absence of any discussion here of recent developments in the soverign debt market.

Irish bond yields peaked in mid-July, when the 10-year yield reached 14.0% and the 2-year 23.0%.

Today the 10-yield has fallen to 8.9% and the 2-year yield is down to 8.5%.

Meanwhile, the Greek 10-year yield is now at a new peak of 18.3%, while the Portuguese 10-year yield is 11.1%.


Shouldering the Burden of our Debt

In a recent Blog on Reuters, ‘Europe’s Dangerous New Phase‘, which also appeared as an article in the Financial Times (July 18th), Lawrence Summers claimed that

“… no country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors. Meeting debt burdens at rates currently charged by the official sector for credit – let alone the private sector – would involve burdens on Greece, Ireland and Portugal comparable to the reparations’ burdens Keynes warned about in The Economic Consequences of the Peace.”

The economic history behind these comments is shaky. Total reparations demands made on Germany in the Versailles Treaty were in the region of 132 billion Marks, equivalent to over €600 billion in today’s money. This was about four times Angus Maddison’s estimate of  Germany’s GDP in 1919.  The burdens placed on Greece, Ireland, and Portugal today are not comparable. Moreover, President Clemenceau wanted to reduce post-war Germany to an impoverished agricultural nation, whereas all President Sarkozy wants to do is to raise our corporation income tax rate.

More importantly, though, it is wrong to claim that ‘no country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors’. Ireland did exactly that to get out of the mess we were in by the mid-1980s. We ran a primary budget surplus for over 15 years – from 1984 to as recently as 2007. This surplus exceeded 7% of GDP for several years at the turn of the century and helped us reduce our debt/GDP ratio from a peak of 120 per cent in 1986 to less than 25 per cent in 2007. Foreign borrowing had been paid off by 2002.

In a recent article in the Sunday Business Post Dónal de Buitléir makes the case that the challenges facing us now are more manageable that those we overcame in the 1980s.

Economic Performance Social conditions

Some Cheerful Demographic Statistics

To take our minds off the heavier economic / financial topics for a while I thought I would share some thoughts provoked by the Annual Summary of Vital Statistics for 2010 published at the end of June. Taken in conjunction with the preliminary results of the 2011 Census, it reveals some surprisingly positive trends for a country in the throes of a very deep recession.

Our birth rate is holding up despite the surge in unemployment and the resumption of net emigration (even if at a more modest rate than previously feared).

Over 75,000 births were registered in 2008 – almost 60% more than in 1994 and the highest number recorded in modern times. However, this was probably the peak, as the annual total for 2010 was 2% lower than that for 2008, while the 2010Q4 figure was 4% lower than the corresponding figure for 2008.

The surge in births will have far-reaching implications for the economy’s medium-term prospects.  Most immediately it is placing pressure on the educational system, but over the longer run it could be argued that our relatively youthful population will bestow a competitve advantage relative to the rest of Europe, where the ageing of populations is becoming an acute problem.

Economic growth Economic Performance Social conditions Uncategorized

Census 2011 – Preliminary Results

The preliminary results of last April’s Population Census are available here.

They show continued strong population growth, averaging 1.6% a year over the last five years.

The CSO is to be complimented on the timely production of this very informative release.

EMU European politics Monetary policy

Lorenzo Bini Smaghi

LBS’s many fans on this Blog will want to read about the controversy surrounding his continued membership of the ECB’s Executive Board. If he does not step down Nicolas Sarkozy is threatening to block Mario Draghi’s accession to the Presidency. The Financial Times account is here.

Silvio Berlusconi has called on him to step down, although no definite decision has been taken to offer him the post as head of Banca d’Italia in succession to Draghi.

According to the Corriere della Sera LBS had ‘no comment’ about the issue on leaving the palazzo Chigi. However, La Repubblica quotes him (on leaving a conference in the Vatican) to the effect that he cannot be removed before the end of his eight-year term. He underlined that ‘personal independence is one of the doctrines on which the independence of the Bank rests.’

Economic Performance Environment Social conditions

Your Better Life Index

The OECD has launched a new index with the aim of facilitating comparisons of the quality of life across countries. You can find the country summaries here.

Ireland does quite well in the rankings, although the usual caveat about using GDP in an Irish context applies.  Moreover, the data used are mostly from 2008 and we have undoubtedly slipped towards the relegation zone since then.

Economic Performance

Men Without Work

The rise in the unemployment rate reveals a grim picture of the impact of the recession. The overall unemployment rate has risen from 4.4% at the beginning of 2007 to 14.6% today. Male unemployment is now 17.3%, while unemployment among men aged 20-24 is 32.3%.

Concentrating on the situation of males in some key age groups, the first Chart shows the unemployment rates for those aged 20-24, 25-34, 35-44 and 45-54 (four-quarter moving average of the Quarterly National Household Survey rates). Unemployment rose dramatically in all fours age groups, but younger men were most severely affected.

During a deep recession unemployment rates do not tell the whole story because people tend to withdraw from the labour force, cease to search for work and are no longer classified as ‘unemployed’ according to the International Labour Office conventions.

The CSO publishes broader measures of unemployment as well as the main ILO rates. The broadest of these includes those marginally attached to the labour force and others not in education who want work and it now stands at 23%.

This broad unemployment rate is not available by age and sex. However, the ‘employment rate’ (the proportion of the population that is employed) is available by demographic group and it sheds light on labour market trends that supplement the information in the conventional unemployment rate.

The second Chart shows the employment rate in each of the four age groups. As we would expect from the unemployment figures, the fall in employment has been most dramatic among younger men. Since the end of 2009 fewer than 50% of males aged 20-24 have been classified as ’employed’, compared with over 75% as recently as 2007.

It is instructive to look at the distribution of ‘non-employed’ men between ‘unemployed’ and ‘not in the labour force’. This is shown in the following four Charts. The proportion of the population ‘not in the labour force’ is lowest among men aged 35-44 and highest among those aged 20-24. But in all four groups there has been a significant rise in non-participation during the current recession. In fact the rise in ‘non-employment’ was split approximately 3:1 between increased unemployment and increased non-participation in all groups. While some of the rise in the numbers not in the labour force may be attributable to increased retention of younger males in the educational system, most of it is likely to reflect drop-out due to discouragement and the belief that no jobs are available.

Previous research has shown that those most likely not to be employed are single males with low educational attainment living in areas of high overall unemployment. It is likely that these factors continue to increase the risk of being without work.

The rise in unemployment and fall in employment leveled off during 2011 but as in recoveries from previous recessions further improvement is likely to be slow and the adverse effects of the contraction in the economy will be felt well into the future.

Let us hope that the ‘jobs initiative’ to be announced later today can make some impression on these figures and will include measures to ‘re-activate’ those who have dropped out of the labour force as well as those who are overtly unemployed.


Latest Issue of The Economic and Social Review

The latest issue of The Economic and Social Review is available here.