Clear progress made on jobs but effort must be kept up

A range of economic indicators have moved into positive territory over the past few months and there is no longer much doubt that the long-awaited economic recovery is under way. The big question now is where the benefits of the recovery will go.

Will they be directed at creating the tens of thousands of new jobs that the country so badly needs or will those already in secure employment get the biggest slice of the recovery by clawing back some of the cuts imposed at the height of the crisis?

Since they took office Taoiseach Enda Kenny and his Ministers have repeatedly stressed that job creation is their central objective and it appears that their focus has started to pay off.

The latest figures published during the week are encouraging and show that the Coalition is on the right track. The unemployment rate has now fallen to 12.3 per cent from 13.9 per cent in January 2013 and the 15.1 per cent peak in February 2012. If the pace of improvement is maintained the rate is on track to fall to below 10 per cent by the end of 2015.

The cut of almost three percentage points in two years still leaves the country with a huge problem, with 400,700 people on the Live Register in January, on a seasonally adjusted basis, down from the 449,000 peak in September 2010.

The Government’s action plan for jobs has undoubtedly been important in creating the right conditions for job creation but the pressure will need to be kept up all the way to the next election to get the figures down to a remotely acceptable level.

No big bang
The action plan has involved hundreds of small decisions aimed at making it easier to do business in Ireland rather than any big bang policy, but it does appear that the attention to detail is paying off.

None of the other euro zone countries which have experienced serious economic difficulties and bailouts in recent years have managed to turn their jobless figures around in a similar fashion.

A key aspect of the action plan has been the way it has forced Government departments and State agencies to focus on meeting their targets. Monthly meetings of officials feed into three-monthly reviews by the Cabinet subcommittee on jobs followed by a press conference at which the Taoiseach, Tánaiste Eamon Gilmore and Minister for Jobs Richard Bruton have to account for progress or the lack of it.

“One of the reasons this process works is that the Taoiseach gets a constant update about what is being done and there is a mad scramble in the last few weeks before the three-monthly deadline to ensure that decisions are made and items on the action plan list delivered,” says one Government source.

One of the political ironies of the situation is that Kenny and Bruton, who were rivals for the Fine Gael leadership less than a year before the Government took office, are partners in this approach to the job crisis and both of their political reputations are on the line.

The involvement of Bruton and Gilmore, who have responsibility for jobs and trade respectively, also created an interesting dynamic at Cabinet, with a counterbalance to the traditional power of Finance and Public Expenditure, who call most of the shots on Government spending.

A striking feature of the jobs crisis is that so many of them evaporated in one area of the economy, construction. The quarterly labour market figures produced by the Central Statistics Office are startling.

The CSO survey for April to June of 2007 showed that there were 273,900 jobs in the construction sector. In the same period last year, there were 102,700. That is a fall of 171,200 jobs, which accounts for a huge proportion of the unemployment figures. Some of the other statistics in the survey are also very interesting. Contrary to popular belief, the numbers employed in the health sector have actually increased from 211,700 in 2007 to 244,600 last year. The same is true of education, where the numbers are up from 142,100 to 244,600.

Whatever happens in the next few years, the numbers employed in construction are not going to get back to anything like the figure that prevailed in 2007 and that is no bad thing.

However, there is certainly room for an expansion of the sector back to a normal level for a developed society, a point Minister for Finance Michael Noonan made yesterday.

However, construction is not going to provide the same level of employment as it did during the boom, and the question is where the kind of people who formerly looked to it for jobs are going to go.

A huge focus on retraining will be required even if the recovery continues to gain momentum and jobs continue to be created in more highly skilled sectors.

Pent-up pay demands
One of the big dangers is that economic recovery is likely to trigger demands for higher pay across the board before the jobless figures have been reduced sufficiently. Despite big gains in competitiveness in recent years, pay rates in Ireland are still high even by European standards and there is not much room for significant increases in the short term.

One of the features of the Irish labour market in both the private and public sectors is that, when the need arises for cost reductions in times of economic stress, the tendency has been to cut the numbers employed rather than pay.

The scale of our recent crisis did prompt pay cuts in the public service and in many parts of the private sector, but the biggest savings were still made by cutting the numbers in employment.

Escaping from the jobs crisis rightly remains the priority of Government but hard choices will have to be made to keep the figures moving in the right direction.