The Irish labour market and wages

The robust performance of the Irish labour market over the past number of years offers the most tangible evidence of the recovery in the Irish economy. With unemployment falling and vacancies rising, an obvious question that arises is the extent to which the current pace of growth can be maintained. Today, colleagues in the Central Bank published a paper examining this very issue, bringing together a range of labour market indicators to assess the current state of play including prospects for wages over the short-term. We also revisit Okun’s law and the Phillips curve drawing on the latest Irish data. We hope that this research proves useful as 2017 draws to a close. The paper is titled ‘The Labour Market and Wage Growth after a Crisis’ and can also be accessed by clicking this link.

That 26% growth rate – from startled earwigs to stars in our eyes

Last year we were scrambling around in response to the impact of the 26.3 per cent real GDP growth rate that was the headline from the 2015 National Income and Expenditure Accounts (NIE).  So where do we stand one year on? Long post, with too much mind-numbing detail, below the fold.

Continue reading “That 26% growth rate – from startled earwigs to stars in our eyes”

Producing Short-Term Forecasts of the Irish Economy: A Suite of Models Approach.

A new working paper from Niall Conroy and Eddie Casey of the Fiscal Council Secretariat.

Abstract:

The Council’s mandate includes endorsing, as it considers appropriate, the official macroeconomic forecasts of the Department of Finance on which the annual Budget and Stability Programme Update are based. As part of the endorsement process and for the purposes of its ongoing monitoring and analysis of the Irish economy, the Council’s Secretariat produces its own Benchmark macroeconomic projections. This paper describes the short-run forecasting models used by the Secretariat for producing these projections. The general forecasting approach can be described as follows. Equations are used to forecast each component of the expenditure side of the Quarterly National Accounts. Multiple models are estimated for most components, with the simple model average used as an initial input into the formulation of the Benchmark projections. The out-of-sample forecasting performance of these models is assessed at each endorsement round. In addition to these model-based projections, other elements are considered. Discussions with the Council and other forecasting agencies help to guide any judgement that may be applied before arriving at the final Benchmark projections.

65th Economic Policy Panel

For more than 30 years, Economic Policy has been publishing papers on pressing European policy issues. Preliminary versions of the papers are first discussed at Panel meetings. The 65th Panel meeting, which starts today in Valletta, features papers on the causes of Brexit, on the consequences of Brexit, on the impact of the 2015 reforms on the Italian labour market, on innovation, on entrepreneurship, on retirement, on monetary policy, and on mobile communications. The papers are available here.

“No recovery here”

One of the really interesting outcomes of the last election was the rejection by voters of the Fine Gael strap line: let’s keep the recovery going. As measured by GDP growth, Ireland was rebounding from its period of austerity very strongly, with the fastest GDP growth in Europe.

A household sector which had just received an income tax cut, child benefit increases, pension increases, social welfare increases, public sector pay increases (or restorations, whatever), threw the main party’s ‘recovery’ line back in its face at the doorsteps–what recovery, they asked. No recovery here.

This was taken to mean that there was no recovery outside of Dublin. Dan O’Brien’s series of columns have dispelled that myth. There is a recovery in rural Ireland, it’s just not happening as quickly as in the capital, where employment levels are now 96% of their 2008 peak. In the Mid-West employment levels are at 88% of their peak.

Source: CSO.ie
Source: CSO.ie

Then a long and rambling discussion on the corporate tax element of Ireland’s apparent rebound took place, largely on twitter. The volatility of the corporate tax take in Ireland is exceptional.

Yet another strand of the argument is given by thinking about Ireland in relation to Europe. Philip Connolly of the times in Ireland showed me these data of GDP per capita in purchasing power parity adjusted euros compare it with an actual income for consumption measure. The graph below is from Eurostat and shows the difference in the two measures  with Ireland and Luxemburg showing a very large difference between these two measures of household welfare. Using the AIC measure, Irish households are closer to Italian than Danish levels of welfare.

Source: Eurostat
Source: Eurostat

This may give a clue as to why we see such large differences between official rhetoric and the popular reaction to that rhetoric.

 

 

 

Macrofinancial History and the New Business Cycle Facts

Jordà, Schularick and Taylor have produced a must-read paper, summarising the results of a decade-long research effort to create a long-run macro-financial data set for 17 countries. The paper is here (.pdf) and they provide some new stylized facts they document should “prove fertile ground for the development of a newer generation of macroeconomic models with a prominent role for financial factors”.Screen Shot 2016-04-17 at 21.57.06

In particular, they document a ‘hockey-stick’ effect of private sector creditto GDP for a range of economies, and one of the hockey sticks can be seen in the figure below. After about 1950, for most of the elements the authors study, finance and leverage takes a more and more central role in the development of modern economies.