Wednesday 16 January 2019

Full employment is more like a work of fiction, Leo

Jobs figures show the economy has slowed, but it's the low-skilled we need to worry about, writes Dan O'Brien

Emerging from the shadows: Taoiseach Leo Varadkar prepares to greet European Parliament Brexit co-ordinator Guy Verhofstadt on his arrival at Government Buildings, Dublin, last week. Photo: PA
Emerging from the shadows: Taoiseach Leo Varadkar prepares to greet European Parliament Brexit co-ordinator Guy Verhofstadt on his arrival at Government Buildings, Dublin, last week. Photo: PA
Dan O'Brien

Dan O'Brien

The man who has had as much sway over the Irish economy as Paschal Donohoe and Michael Noonan over the past half decade spoke in Ireland for the first time last week. Mario Draghi, the president of the European Central Bank, has more influence over the interest rate on your mortgage than anyone else. During his time at the helm in Frankfurt, two Eurozone countries - Cyprus and Greece - have had their entire banking systems shuttered for weeks as a result of disputes with the institution he leads.

Now, on the final straight of a seven-year term, the Italian gave a speech in Dublin's Trinity College last Friday. Unusually for a central banker, there was no mention of inflation or interest rates. Instead, he spoke mainly about youth unemployment.

The speech was unremarkable. What is remarkable is that the leader of one of the European Union's most important institutions has taken more than five years to get around to visiting one of the 19 countries over which he wields so much power. And that is despite endless blather about the recognised need to bring the EU and its institutions "closer to the people".

But the narrowing of the EU's legitimacy deficit is not the subject of today's column.

A short time after Mr Draghi finished his speech, some rather less exalted civil servants gathered a few hundred metres away from Trinity College. Jobs and joblessness were also on their minds.

They were publishing the single most important set of figures available on the Irish economy. Every three months the State's statisticians do a massive and costly survey to find out who is working, what they are working at, who is not working, what they are doing instead of working, and a great deal else besides.

Their employment findings are particularly important in Ireland because our GDP numbers, which most other countries rely on to tell them about the state of their economies, went haywire years ago (that reflects the huge influence of multinational corporations in Ireland, which, though enormously beneficial, distort the GDP measure of economic activity).

The latest jobs figures were somewhat unsettling. In the second quarter of the year, employment growth slowed to a snail's pace. Just over 1,000 jobs a month, in net terms, were added to the national payroll. That was by far the smallest improvement in three years. On average, employment has grown five times more rapidly since the middle of 2014.

At first glance, such a sudden slowdown in job creation might be attributed to a statistical blip. But, and this is why last Friday's figures were unsettling, other important economic indicators also point to a slowdown in the April to June period.

The most important of these is the national spend on consumer goods and services. This had been growing strongly until March. In the second quarter, it suddenly, and unexpectedly, shrank. The decline of more than 1pc compared with the first quarter of the year may not sound like much to most people, but for economists who pore over these numbers, that is a big decline in such a short time.

As if that was not enough to cause hands to wring, a narrower set of numbers on consumer activity corroborates the evidence of a slowdown in late spring and early summer. Most measures of retail sales were also down in the second quarter compared with the first.

All of this is not cause for celebration. But nor is it cause for too much concern. Yet.

Over the past five years of recovery, the economy has hit a couple of soft patches. In each case, that's all they have turned out to be. It is to be hoped that what happened to the economy in early summer was just another soft patch.

If last Friday's raft of figures on the world of work were not so good from a short-term perspective, other longer-term trends are also worth highlighting because they give cause for great concern.

Among the most concerning is how the recovery in the labour market is bypassing those with little or no education.

Before the crash, 40pc of working-age people who had not gone on to secondary school had jobs. That plummeted to just one in four when the economy went south. It has not recovered since. And although the total number of people aged 15-64 - both employed and not employed - who never got more than primary schooling has fallen, their number is still large, at just under a quarter of a million.

The picture for adults who only have junior/inter certs is not much better. And there are a lot more of them - almost half a million.

Before the crash, around 55pc of people with a lower secondary school qualification worked. At the worst moment in recent labour market history - 2012 - it was below 40pc. As of the early summer of this year, it was still below 40pc.

These developments are in very stark contrast to the other end of the educational spectrum. Of the 1.1 million people in Ireland who have third-level degrees, 84pc were working at the last count.

What's more, almost all the 200,000+ increase in total employment since the turnaround has been accounted for by degree-holders.

There has been a lot of talk in recent times about swathes of populations in rich countries being "left behind" by globalisation and automation.

Outside of the US, there is actually very limited evidence to support the thesis. Over the long term in Ireland, that is also the case. But the crash did have a much greater impact on early school leavers, and they have been left behind by the recovery.

It is particularly important to highlight this when politicians, up to and including the Taoiseach, are complacently talking about the economy coasting toward 'full employment'.

Ireland currently has just over 65pc of working-age adults in employment, up from just under 59pc at the lowest post-crash point. In Britain, Germany and Sweden, 75pc of adults work.

There is no reason, whatsoever, that our definition of 'full employment' should not be what these countries have achieved.

At the current rate of progress it will take almost a decade to achieve that. Politicians should not pat themselves on the back and declare that the job on jobs is done.

To do so would not be to ignore those left behind, but to abandon them.

Sunday Independent

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