The Wall Street Journal carries an extensive article on Irish emigration.
Category: Migration
It is time to dust off old ways of thinking about the Irish economy that were useful in the past.
In the long run, migration sets a floor to Irish wages. It has been thus ever since the Famine of the 1840s, and I don’t believe that the Irish have become less mobile in the last 20 years. Now, a lot of Irish wages are still high by international standards, but eventually as ‘internal devaluation’ proceeds, and as peoples’ living standards are lowered as a result of tax hikes and cuts to public services, it seems inevitable that the ‘migration constraint’ will start to bind again.
Once this happens, then very roughly speaking the size of the Irish economy will be largely governed by relationships of the following sort:
w(1-t) + b + P = E
where w is the wage (which determines employment and output, for given levels of the capital stock and technology); t is the tax rate; b is the value to workers of the public services they receive; P is the premium we enjoy as a result of living in Ireland; and E is the living standard which we can enjoy overseas. If the left hand side of this equation falls too far below the right hand side, people will leave until equilibrium is re-established.
Once we hit this constraint, either because w falls, or t increases and b declines, adjustment in the economy will be more quantity-based and less price-based than it has been to date.
And it gets worse, since t and b depend inter alia on the levels of output and employment. There are fixed costs to running a state, and the debts we are now being saddled with are not population-dependent. You don’t have to be Paul Krugman to see the potential for some pretty nasty feedback loops here.
What can politicians do? The most obvious thing to do is to minimize the debt overhang facing this State, so that t is not higher, and b is not lower, than they otherwise would have to be. Less obviously, if politicians — not the existing ones, obviously, but an entirely new political class — can increase P, by providing people with a political project for national renewal that they can buy into, this might also help convince some people at the margin to stay at home. This is not just essential for our democracy, but for the economy as well.
The latest QEC is here. Here’s the press release:
- We expect that GNP will contract by 1½ per cent this year. For GDP, we expect a decline of ¼ per cent. For 2011, we expect GNP to grow by 2 per cent and for GDP to grow by 2¼ per cent.
- We expect that employment will average 1.86 million this year, down 68,000 from 2009, a fall of 3½ per cent. We expect the rate of unemployment to average 13¼ per cent. For 2011, we expect the number employed to average 1.85 million and the rate of unemployment to average 13½ per cent.
- In the year ending April 2010, the CSO recorded net outward migration to have been 34,500. This was well below our forecast of 70,000. We discuss how this figure of 34,500 seems to be a conservative estimate of the rate of outflow when compared with estimates of migration contained in another CSO publication, namely, the Quarterly National Household Survey. We expect the net outflow in the year ending April 2011 to be 60,000. This is an increase of 10,000 on our earlier forecast for the year ending April 2011.
- The General Government Deficit is expected to be 31 per cent of GDP this year, a truly dramatic figure. Of course, almost two-thirds of this is a one-off extraordinary item related to the banking bailout. For 2011, we expect the deficit to be 10 per cent of GDP, based on a budgetary package of €4 billion in savings.
- In our General Assessment, we look at the budgetary challenges facing the country and in particular at the prospects of bringing the deficit down to sustainable levels in a reasonable timeframe. Using the “Low Growth” profile as published by the ESRI in July 2010, we assess what level of savings will be required to achieve a deficit of 3% by 2014. Our calculations suggest that savings of up to €15 billion could be needed, i.e., twice the sum that was under discussion at the time Ireland and the Commission agreed to the 2014 deadline.
- We express a concern over the potential negative impact on the economy of this scale of adjustment over this period of time.
- While the 2014 date strikes us as worryingly ambitious, we are mindful that an extension is highly unlikely and so we must operate within the constraints as presented. Although we have based our forecasts on a budgetary package of €4 billion of savings, it could well be that a higher amount will be sought. Whatever it is, the scale of the task is such that there will be a need for adjustments in current and capital spending and in taxation.
Don’t forget to read the articles in the Research Bulletin.
I don’t agree with everything in this article, by any means, but it is thought-provoking and topical. And I definitely agree with the authors about the brilliance of Albert Hirschman.
Besides, it gives me an excuse to post a link to this piece from April.
Also from the CSO today, estimates of population and migration for the year ending in April 2010. The headline figure that will attract the most attention is net outward migration of 34.5 thousand, the largest figure since 1989.