Long-term unemployment a bigger problem than emigration

It is difficult enough having to deal with the type of economic crisis of the last six years that Ireland confronted. But on top of this, policymakers must cope with the proliferation of misleading or incomplete information and populist solutions which repeatedly gain media headlines.

This was particularly so in relation to the banking and fiscal crises, and still is today, especially in relation to unemployment and migration.

Let me start with some good news that belies popular misconceptions. Yes, over the last six years there has been large emigration, but there has also been substantial immigration. We have heard the oft-quoted figure of more than 80,000 quitting the country each year, but rarely that 50,000 have also arrived, leaving a net loss of 30,000 or more in each of the last two years. This is still of course an unacceptably high figure.

Remarkably, though, since 2008 there has been an increase in the Irish population in every year, with 100,000 people added in that period. Bear in mind that in the first 50 years of this state there was no increase at all in population size.

The story with regard to net migration is also more nuanced than popular commentary would suggest.

ESRI research has shown that more people with third-level qualifications entered than left the country in recent years: and that total employment increased in every year for those with such qualifications.

As such, the net loss to migration and the large employment decline are accounted for by people without third-level qualifications.

The employment story in fact is largely one to do with construction and related services and to a lesser extent manufacturing. More than 50 per cent of the decline in employment between 2008 and 2013 was in construction and a further 20 per cent in manufacturing

Jobless rate
This means that there were very few decreases in employment in other sectors. Remarkably, the numbers employed in the health and education sectors increased, and this is again

at variance with popular perceptions.

A less good story is that recent welcome reductions in the unemployment rate also need qualification. A rate of 12.5 per cent is still a long way off the 4.5 per cent unemployment rates of some years back. Those low figures though belie a failure which existed even then in labour market performance.

Many consider that a better measure of how the labour market is performing is the proportion of the working age group not in employment, as this takes into account not just those unemployed but also those on disability benefit and not actively seeking paid work for whatever reason.

Even in the boom years of the mid-2000s, about 31 per cent of the working age population were not in employment in Ireland, compared to a figure of 25 per cent in the Nordic countries and the Netherlands.

By 2012 a full 41 per cent of those of working age in Ireland were not in employment, compared to less than 30 per cent in Britain and 25 per cent in the Netherlands and Norway.

Let us look now at the age group getting most attention in recent times, those aged 20-24. The proportion of that age group not in employment, education or further training, comparative Organisation for Economic Co-operation and Development (OECD) statistics show, was more than a quarter in Ireland. This figure is higher than that for Greece, and more than twice that of many OECD countries.

This is a better measure of labour market performance than the commonly-used youth unemployment rate, which is totally distorted by the fact that so many of that age group are in education.

Add to the above that about half of those aged under 25 are already unemployed for more than 12 months and then the seriousness of the employment crisis becomes evident.

Long-term unemployment is extremely difficult to reverse. The figure for Ireland is way above that for almost all OECD countries, bar Greece.

The banking and fiscal crises were existential threats to the Irish economy during the last six years and dealing with the unemployment crisis had to take second place. But the longer an unemployment crisis persists, the much more difficult it is to resolve.

Commendable efforts have been outlined in the Strategy for Growth document of last December to deal with long-term unemployment, particularly among the young.

One would have hoped that many of these measures should have been in place more than 15 years ago when we last experienced high rates of long-term unemployment.

The solution cannot again be the transfer of many of the long-term unemployed to disability benefit. This might reduce the unemployment rate but does not reduce in any way the high proportion of the population not in work.

Ireland stands out compared to most OECD countries with regard to one factor affecting this issue: it is not the level of unionisation, or the strictness of employment protection, as some suggest, but the level of unemployment payments relative to previous earnings.

Zero tolerance
In Ireland this is

higher than in Denmark or Norway, which have, since 2005, experienced big drops in these ratios, and much higher than for the UK.

Relatively high unemployment payments need not of course be incompatible with low unemployment rates. To achieve this though requires the adoption and enforcement of Nordic and German-type labour activation policies.

These include zero tolerance of fraud and very strict enforcement of the job-search requirement. Even more important is that payments are made conditional on accepting suitable employment and training opportunities. Irish policymakers are unfortunately coming to this realisation very late in the day.

The announcement of the implementation last week of some of the measures outlined in this regard in A Strategy for Growth is a good start. But it is just that. Much more needs to be done, and quickly, before the long-term unemployment problem becomes intractable.

John O’Hagan is Professor of Economics at Trinity College Dublin