Business Editor Jason Somerville takes a look behind some of the seemingly positive labour market statistics that have indicated the bottoming out of the Irish economy.
At the end of February, unemployment inched back to 12.6% from 12.7% the previous month. Economists have been pointing to the continued improvement over the last three months in the jobless figures as a signal that things are looking up for the Irish economy. However, beneath the figures is a much bleaker story.
Recent statistics from the Central Statistics Office (CSO) show that in 2009, 93% of Irish emigrants were under the age of 44. This implies that the majority of those who left the country last year did so in search of work. Ultimately this improves the official estimates of the level of unemployment, but it masks a more worrying underlying trend.
Ireland has one of the most highly-educated workforces in the world. Indeed, 61% of the total population have attained a third-level degree. Furthermore, this figure is likely to increase as the benefits of “free education for all” filter through to the next generation.
Connecting the dots, it is clear why such a high level of emigration can be detrimental to the future growth potential of the Irish economy. The so-called “brain drain” is not new to Ireland. The 1980s were marked by mass emigration, primarily by highly-educated young people, in search of employment. This became so widespread that the world-renowned psychologist Hans Eysenck postulated that the Irish had become a genetically inferior race. His argument, while extremely simplistic, was that the most highly-educated Irish citizens would leave Ireland in search of work due to a lack of available domestic opportunities. By emigrating, their DNA would be excluded from the genetic pool. It is a shame that Eysenck died in 1997, just as the Celtic Tiger was taking hold and Ireland was being propelled into the league of the world’s most advanced economies. Indeed, such an achievement was built upon a “knowledge-based economy”, contrary to Eysenck’s grim prediction.
While Eysenck was wrong about the genetic inferiority of the Irish, a valid point can be derived from his observation. If the most talented graduates in the country are persistently forced to emigrate in search of job opportunities, Ireland’s reputation as a “knowledge-based economy” may become severely compromised. No level of corporation tax could compensate multinationals for this development.
So what can be done to offset this vicious circle? The answer is obvious: stimulate growth and employment. However, the method by which such a result could be achieved is less straightforward. In 2009, of the 213 countries in the world, Ireland’s economic performance ranked 206th, underscoring the need for immediate action.
Traditionally, when governments want to increase employment, they borrow and stimulate the economy. However, as it stands, Ireland already needs to borrow €20 billion from private markets this year alone to run the country on a day-to-day basis. This is despite €4 billion in cuts introduced in this year’s budget.
An alternative method of employment generation lies with monetary policy. However, given the ECB’s tough stance on inflation and the return to a positive growth in the Eurozone as a whole, this is unlikely to materialise.
Indeed, despite his optimism surrounding the Irish labour market, Bloxham Chief Economist Alan McQuaid warns that “there will be a high level of unskilled workers permanently on the dole queues even when the Irish economy returns to positive growth”.
He notes that?there is no doubt that the lower rates of monthly increase in the numbers signing on in recent months can be put down to increased emigration, more people than usual returning to education and Government schemes aimed at cutting the numbers on the Live Register. This culmination of factors has been responsible for the marginal improvement in the unemployment rate over the past few months. It has not been driven by a “real” shift in prospects for the Irish economy.
The Live Register is only a proxy measure of unemployment. Indeed, we must delve into the Quarterly National Household Survey if we are to arrive at a clear picture of the Irish labour market. Unfortunately, a similar story is to be found. The most recent data from the CSO are for the third quarter of 2009. They reveal that the number of people in the labour force at the end of the period fell by 2.8% in the year. The decline in the size of the labour market was largely attributable to a decline in participation of 53,600 individuals, as represented by the fall in the employment participation rate from 64.2% to 62.5%. This confirms many of the intuitive fears of economists.
In a recent interview with Trinity News, Deputy Richard Bruton was eager to drive this concern home: “66% of the jobs lost have been amongst people who are under 25, and almost 90% among those under 30 … this has been very much a young person’s recession”. However, even his party’s ambitious plan of a “program for employment” that plans to invest €11 billion in key infrastructures will have to face up to a number of economic realities if it is to be implemented.
It has hard to be anything but pessimistic about prospects surrounding the Irish economy. Worryingly, the more conditions deteriorate in the labour market, the more damage will be done to the long-term growth potential of the economy. In the 1980s the government focused all of its efforts on stabilising the budget deficit and hoped for a miracle in order to boost growth. That miracle came in the form of the booming US economy of the 1990s. This time around we cannot afford to wait patiently for such a miracle. It is unfortunate then that we have little other choice.