Jobs fail to restore feelgood factor
We're getting back to work but the continuation of the banking crisis is taking the shine off our achievement
THE sharp increase in the number of people at work, with almost 30,000 new jobs being created in the third quarter, has not translated into economic growth, with the OECD now predicting 2013 GDP growth of just 0.1 per cent. Falling earnings and the continuing banking crisis seem to be cancelling out the impact of renewed jobs growth.
One of the most notable features of the post-Celtic Tiger bust was the collapse in employment, with the number of people at work falling from 2.146 million in third quarter of 2007 to 1.825 million in the first quarter of 2012, a reduction of 321,000 or 15 per cent.
This collapse in employment levels, particularly in construction, was one of the major contributors to our budgetary crisis as tax revenues, PAYE, PRSI, VAT and so on, plunged and social welfare spending soared on these newly-unemployed.
The good news is that the massive job losses we experienced from 2008 to 2011 now seem to be behind us.
After bottoming out at in the first quarter of 2012 the number of people at work has since grown by 74,000, with 29,400 new jobs being added in the third quarter alone. Indeed, based on the latest CSO figures it would appear that, not alone is employment growing once again, the rate at which people are returning to work is actually increasing with the third quarter increase of 29,400 being significantly up on the 25,400 new jobs recorded in the second quarter increase.
So far so good. However, if previous experience was any guide, this strong increase in employment would be translating into resurgent economic growth, vigorous retail sales and booming tax revenues.
Except that it ain't happening. The OECD, the Paris-based club of rich countries, now forecasts that the Irish economy, as measured by GDP, will grow by a barely perceptible 0.1 per cent this year.
While the OECD is predicting 1.9 per cent economic growth for 2014 don't hold your breath.
The history of Irish economic forecasts over the past few years has been one of constant disappointment, with the actual outcome falling far short of the early predictions.
And it's not just non-existent GDP growth.
Other more tangible indicators also indicate that the Irish economy is flat-lining.
After a brief mid-year rally non-motor retail sales are sputtering once again with a 0.4 per cent fall in the value of sales in August being followed by a 1.8 per cent drop in September.
The renewed weakness of retail sales should come as no surprise to anyone who keeps even a passing eye on the public finances with VAT receipts for the first ten months of the year running more than 2 per cent behind target.
So what is preventing the increased numbers of people at work feeding through into the wider economy?
On the same day as it published its latest employment estimates, the CSO also published its most recent earnings data.
If the picture being painted by the employment numbers was one of renewed optimism, it was a very different story with the earnings data, which showed that average weekly earnings fell by 2.4 per cent in the 12 months to the third quarter. More people may be at work but they are being paid less so the increase in employment isn't generating any corresponding increase in consumer spending.
Reduced earnings and a zombie banking system, of which the mortgage famine is merely one manifestation, are almost certainly two of the main reasons for the failure of employment growth to feed through into meaningful economic growth. However, there is almost certainly one other major factor at work. Many of the new jobs generated by the Irish economy over the past 18 months have gone to foreign nationals.
The most recent CSO figures indicate that 40,000 non-nationals immigrated to Ireland in the 12 months to April 2013, up from 32,000 a year previously.
Many readers will no doubt remember the controversy which briefly erupted last year when it emerged up to half of the 1,000 jobs being created by PayPal in Dundalk would go to foreign workers.
'So what?' one might ask. 'Don't foreign workers pay their taxes like their Irish counterparts?' Of course they do.
However, when an unemployed Irish person goes from the live register to a job there is a double whammy for the economy.
Not alone does the Exchequer receive the taxes on their wages and spending, it also benefits from lower social welfare spending as that person comes off the live register.
Unless a newly-hired foreign worker is already in the country having been previously on the live register, this double whammy is absent.
Add it all up and while the increase in employment is welcome news we will have to create many more new jobs before the feel-good factor returns.