ECONOMICS:Last week's splendid OECD report was telling in one vital area: the State must alter its approach to putting people back to work

IN THE early 1990s, the Republic and Spain had the highest unemployment rates among the developed countries, with joblessness peaking at 16 per cent in this State in 1992 and 20 per cent in Spain two years later.

In both cases, many of the unemployed had been out of work for long periods, had low skills and appeared to have little prospect of finding jobs. In 1990, for instance, more than two-thirds of those out of work in the Republic had been jobless for a year or more. Economists refer to this as “structural unemployment” and tend to be pessimistic that it can fall. In the early 1990s economists believed that this State and Spain had unusually high rates of structural unemployment and that little prospect existed of full employment because the structurally unemployed were, effectively, unemployable.

This proved incorrect in the Republic’s case and partially wrong in Spain’s.

Both experienced jobs booms from the mid-1990s. Strong demand for labour had a spectacular impact on dole queues in the second half of the 1990s in the Republic. In the first months of the new century, the unemployment rate hit 4 per cent. It stayed at about this rate – which is broadly consistent with full employment – until early 2008.

The assessment of Spain’s structural unemployment problems in the mid-1990s proved more accurate. Despite a long boom, during which, proportionately, almost as many foreigners arrived in the country to work as did in this State, unemployment never fell below 7 per cent. Since the two countries experienced crashes in the building and property sectors, they have returned to their 1990s circumstance as the Organisation of Economic Co-operation and Development economies with the highest jobless rates.

Two points can be taken from these experiences. First, demand is the most important factor in determining unemployment. Second, all the demand in the world will not eliminate unemployment if supply side rigidities remain in place, such as excessively costly hire-and-fire laws.

A third point comes from evidence generated in countries with better unemployment records than the Republic and Spain: that is that the role of the state is important in the jobs market – in ensuring it does not cause supply side rigidities and in providing assistance to those seeking work.

Last week’s excellent OECD country survey looked at the Irish jobs crisis in depth and is informed by the best global evidence. Among other things, it highlighted – as it has done before, but to little effect alas – the appalling neglect evidenced in the State’s approach to employment/unemployment during the boom. The same irresponsible inaction, in fact, that was to be seen regarding management of the public finances, competitiveness, banking and other areas besides.

It also makes clear that even in the four years since unemployment started accelerating, the political-administrative system has been slow to implement policy initiatives that could help shorten dole queues.

There was reason to believe that a new Government would hasten change, particularly as the jobs-relevant Ministers – Richard Bruton, Ruairí Quinn and Joan Burton – are policy literate and in politics to get things done, not just to get re-elected.

But with the Coalition in office for eight months, the OECD is far from approving in its assessment of how things have changed. “Ireland needs a coherent and integrated plan,” the report states bluntly. It argues cogently that the plan should be based on three pillars: welfare reform; better active labour market policies; and further reduction in unit labour costs.

If the new administration did not “hit the ground running”, as Fine Gael and Labour claimed before the election that they would, the report does find evidence of some progress. It discusses the May jobs initiative, applauding some measures and questioning others.

The newly established National Employment and Entitlements Service has the capacity to end the absurd situation where the State’s welfare and training entities are not integrated, including the scarcely believable fact that the computer systems of the Department of Social Protection and Fás cannot communicate!

It is to be hoped the abolition of Fás and its Solas replacement will be more than a rebranding exercise. However, the no compulsory redundancy clause in the Croke Park deal, combined with a public sector hiring freeze, give cause to wonder just how much can really change.

On a positive note the report states that training and vocational or further education will now be managed by Solas – essential if there is to be a coherent approach to retraining the jobless.

But the Government has certainly not, thus far, been swift and radical in squeezing inertia from the system. In countries with intelligently designed welfare-to-work systems, job-search assistance and monitoring of those in receipt of benefits (to ensure they are looking for work) are the norm. Not here.

“Penalties for insufficient job search or lack of co-operation with employment services are generally weak: for instance, sanctions for job resignation, refusal of employment or refusal of an activation place are extremely rare by international standards,” the report says.

On assistance finding work, “the Irish performance on this count has been deeply unsatisfactory”, the report states. By OECD standards this is very strong language. Earlier this year, research showed that those who received job search assistance, extraordinarily, were less likely to find a job than those who were unassisted. Even more astonishingly, taxpayers’ money is still being wasted on training people in the construction sector. The international agency wants this shut down.

And there is more cause for despair: “Irish spending on activation programmes is heavily tilted towards job creation schemes, which have so far remained essentially unreformed despite ample evidence of their ineffectiveness as an activation tool” (my italics).

The report highlights the limited workplace experience in Post Leaving Certificate courses – the largest single training programme with 40,000 people enrolled – and wants it to form a bigger component of the programme.

On all the schemes, it is scathing in its criticism of “the pervasive paucity of performance evaluations”, a criticism that could be levelled at many if not most programmes across government.

Yesterday the EU-IMF troika concluded their quarterly press conference in Dublin by raising unemployment and the State’s response to it. If they want ideas a ready-made list is contained in last week’s agency report.