ECONOMICS:I'M RETURNING to the theme of unemployment this week because I think it's a dimension of the current slump that has so far received a great deal less attention than it deserves, especially from policymakers. Already, at an estimated 11.4 per cent, the unemployment rate is at a disturbing level. At 16 to 17 per cent, the rate that is now being forecast for next year, it threatens to become a catastrophe, writes JIM O'LEARY
The official response to date essentially amounts to the proposition that restoring order to the public finances, repairing our broken banking system and being lifted by the tide of global recovery, when it turns, will sort the problem. Of course, these are all necessary conditions for getting back to full employment, but they may not be sufficient. Besides, waiting for them to fall into place will entail a great deal of human misery, at least some of which might be avoidable.
In my last column I made the point that the rise in unemployment since late 2007 has been remarkably steep by historical standards, even allowing for the sharp drop in output. A similar conclusion emerges from cross-country data. The latest European Commission forecasts suggest that Ireland will be something of an outlier in terms of the sensitivity of unemployment to declining output: they see our unemployment rate rising by 11.5 percentage points over the 2008-2010 period while GDP contracts by 13.4 per cent.
Ireland is not the only outlier in this regard. Increases in unemployment bigger than might have been predicted, given the forecast declines in output, are also forecast for countries like Lithuania and, most spectacularly of all, Spain. In the latter case a mere 3 per cent fall in GDP is seen bringing about a 12-percentage-point increase in the rate of unemployment. At the other end of the spectrum, the Japanese unemployment rate is forecast to increase by just 2.4 percentage points despite a near 6 per cent slide in GDP.
Why is the sensitivity of unemployment to falling output proving to be higher in Ireland during the current slump than in previous downturns? Part of the answer lies in the behaviour of migrants. During the boom we wondered whether our immigrants would leave the country if the economy ever hit the buffers. We don’t yet have a conclusive answer to that question, but the early indications are that they are staying even when they lose their jobs. Live Register trends are instructive in this regard. In the 12 months to April, the number of Irish people in the dole queues increased by 87 per cent, while the number of non-Irish rose by 144 per cent. The number from the 12 most recent EU accession states rose by 216 per cent.
One doesn’t have to look very hard to find an economic explanation for unemployed immigrants’ willingness to tough it out here: labour market conditions in their countries of origin are also dire. Steeply rising unemployment and sharp contractions in employment are taking place across eastern Europe. The same is true of Britain and the US, the traditional destinations for Irish emigrants.
Still, there is a sizeable emerging gap between the Irish and British unemployment rates, which looks like it could widen to seven percentage points or more next year. This is almost as big as this margin has ever been, big enough perhaps to start generating significant outflows to the UK and limit further increases in our unemployment rate from next year.
The latest available employment data relates to the final quarter of 2008. It shows an unsurprising pattern of employment change across sectors, with the steepest annual declines in construction (16 per cent), hotels and restaurants (8 per cent) and wholesale and retail trade (6 per cent). However, as the ESRI’s Philip O’Connell has pointed out, the data shows a pattern of change across occupations that is at odds with an impression created by some media coverage, namely, that unemployment this time around has become a middle-class phenomenon. Yes, many middle-class people have lost their jobs since the slump started, but job losses between the fourth quarter of 2007 and last three months of 2008 were concentrated in crafts and relatively low-skilled occupations. In the higher-end occupational categories (managerial, professional, technical), employment was still growing on an annual basis at the end of 2008. This is echoed in the pattern of change classified by education. Uniquely across the different levels of educational attainment, those with third-level qualifications saw an increase in employment between the fourth quarter of 2007 and the same period in 2008 while those with the lowest levels of attainment saw the biggest employment losses (down 12 to 13 per cent year-on-year). All categories experienced an increase in the incidence of unemployment, but the smallest increases occurred among third-level graduates.
Another key fact is that employment has been falling dramatically faster among the young than the more mature. Again looking at the period from Q4 2007 to Q4 2008, employment of under-25s fell by more than 18 per cent. Remarkably, this was more than 11 times faster than the rate of employment loss among the over-25s. On the other hand, unemployment has not increased any faster among under-25s than over-25s. The reason is that the number of under-25s in the labour force has fallen sharply. Had this not occurred, the overall rise in unemployment would have been significantly greater.
Falling labour force participation among the under-25s presumably reflects increasing participation in education. Whether and how this trend might be further encouraged is one of the questions I will take up in a later column.
