Showing posts with label Irish jobless. Show all posts
Showing posts with label Irish jobless. Show all posts

Friday, April 11, 2014

10/4/2014: The curse of Long-Term Joblessness


This is an unedited version of my Sunday Times column from March 30, 2014


The unemployment crisis has not passed unnoticed in many households. Ours’ is no exception. Back in 2008, for a brief period of time, both of us found ourselves out of jobs. Thankfully, the spell was very short-lived. Then, in 2011, over a couple of months, I was dusting out my CV for unplanned updates. Just a few days ago, I learned that this year I will not be teaching two of the courses I have taught over the recent years. It's part-time unemployment, again, and this time it is down not to the economic crisis, but to the senile EU 'labour protection' laws.

Yet, spared long-term unemployment spells and able to pick up freelance and contract work, our family is a lucky one. In contrast, many in Ireland today find themselves in an entirely different camp.

Per latest statistics, in February 2014, 180,496 individuals were officially in receipt of Live Register supports for longer than 1 year. Inclusive of those long-term unemployed who were engaged in state-run 'activation programmes' there were around 265,500 people who were seeking employment and not finding one for over a year.

Countless more, discouraged by the zero prospect of securing a new job and not eligible or no longer eligible (having run out of benefits and not qualifying for full social welfare due to total family income) for Live Register supports have dropped out of the workforce and/or emigrated. They simply vanished from the official statistics counts. By latest counts, their numbers can range around 250,000; half of these coming from emigrants who left the country between April 2010 and April 2013.


The numbers above starkly contrast with the boisterous claims by the Government that the economy has created some 61,000 new jobs in 2013. Looking deeper into the new jobs claim, there has been a tangible rise in full-time employment of roughly 27,000 in 2013. Which is still a good news, just not good enough to make a serious dent in the long-term unemployment figures.

Officially, year on year, long-term unemployment fell by 20,900 in Q4 2013. Accounting for those in activation programmes, it was down by around 18,200. Live Register numbers are showing even shallower declines. In 12 months through February 2014, total number of unemployment supports recipients fell 30,807. But factoring in the effect of state training programmes, the decline was only 7,364 amongst those on live register for longer than 1 year. Even more worrisome, since Q1 2011 when the current Government took office, through the first two months of 2014, numbers of the long-term recipients of Live Register support are up by 31,352.

Whichever way you look at the figures, the conclusion is brutally obvious: the problem of long-term unemployment is actually getting worse just as the Government and the media are talking about rapid jobs creation. More ominously, with every month passing, those stuck in long-term joblessness lose skills, aptitude and sustain rising psychological stress.

All of this adds up to what economists identify across a number of studies as a long-term or nearly permanent loss of economic and social wellbeing for workers directly impacted by the long-term unemployment.

However, long-term unemployment also impacts many more individuals than the unemployed themselves.

The lifetime declines in career paths and incomes traceable to the long-term unemployment are also found across the groups related to those without the jobs either via family or via job market connections. Researchers in the US, UK, Germany and Denmark have shown that long-term unemployment for one member of the family leads to a reduction in the lifetime income and pensions cover for the entire household. Studies have also linked long-term unemployment of parents to poorer outcomes in education and jobs market performance for their children.

The adverse effects of long-term unemployment also occur much earlier in the out-of-work spell than our statistics allow for. Whilst we consider the unemployment spells of over 1 year to be the benchmark for long-term unemployment, studies from the US and UK show that the adverse effects kick in as early as six months after the job termination. The US-based Urban Institute found that being out of work for a period in excess of six months is "associated with lower well-being among the long-term unemployed, their families, and their communities. Each week out of work means more lost income. The long-term unemployed also tend to earn less once they find new jobs. They tend to be in poorer health and have children with worse academic performance than similar workers who avoided unemployment. Communities with a higher share of long-term unemployed workers also tend to have higher rates of crime and violence."

This is a far cry from the Irish Government rhetoric on the issue of long term unemployment that paints the picture of relatively isolated, largely personal effects of the problem. Empirical evidence from a number of European countries, as well as the US and Australia shows that these effects are directly attributable to the unemployment spells themselves, rather than being driven by the same causative factors that may contribute to a person becoming unemployed.

Such evidence directly disputes the validity of the Irish Government policies that rely almost entirely on so-called 'activation programmes'. Activation programmes put in place in Ireland during this crisis primarily aim at providing disincentives for the unemployed to stay outside the labour market. Such programmes can be effective in the case where there is significant voluntary unemployment. Instead, in the environment with shortages of jobs and big mismatches between skills and jobs, policy emphasis should be on providing long-term supports to acquire necessary skills and empower unemployed to gradually transition into new professions, enterprises and self-employment.

In part, our state training programmes are falling short of closing the skills gaps that do exist in the labour markets. ICT and ICT support services training, as well as international financial services and professional services skills – including those in sales, marketing, back office operations - are barely covered by the existent programmes.

And where they are present, their quality is wanting. For a good reason: much of our training at best involves instructors who are part-time employed in the sectors of claimed expertise and are too often on the pre-retirement side of their careers, having already fallen behind the curve in terms of what is needed in the markets. In worst cases, training is supplied by those who have no proven track record in the market. Structuring of courses and programmes is done by public sector employees who have little immediate understanding of what is being demanded. We should rely less on the use of training 'specialists' and more on industry-based apprenticeships.

Many practices today substitute applied teaching in a quasi-educational programme with class-based instructions and formal qualification attainment for an hands-on, on-site engagement with actual employers. Evidence collected in Denmark during the 1990s showed that classroom-based training programmes significantly increase individual unemployment rates instead of decreasing them. The reason for this is that attainment of formal or highly specialised qualifications tends to increase individual expectations of wages offers post-programme completion, reducing the range of jobs for which they apply. This evidence in part informed the German reforms of the early 2000s that focused on on-the-job apprenticeship-based skills development. Beyond that, class-based training lacks incentives for self-advancement, such as performance bonuses and commissions.

Self-employment acts as a major springboard to new business formation and can lead to acquisition of skills necessary for full-time employment in the future. Currently, there is little training and support available for people who are considering self-employment. There are, however, strong disincentives to undertake self-employment inherent in our tax systems, access to benefits, and in reduced burden of legal compliance. One possible cross-link between self-employment training and larger enterprises' demand for contractors is not explored in the current training programmes. There are no available shared services platforms that can help self-employed and budding entrepreneurs reduce costs in the areas of accounting, legal and marketing.


Unless we are willing to sustain the indefinitely some 100,000-120,000 in long-term unemployment, we need to rethink of the entire approach to skills development, acquisition and deployment in this country.

Some recent proposals in this area include calls from the private sector employers groups to drop minimum wage. This can help, but in the current environment of constrained jobs supply, it will mean more hardship for families, in return for potentially only marginal gains in employment. Incentivising self-employment and contracting work, by reducing tax penalties will probably have a larger impact. Encouraging, supporting and incentivising real internships and apprenticeships - based on equal pay, commensurable with experience and productivity - will benefit primarily younger workers and workers with proximate skills to those currently in demand. Backing such programmes with deferred tax credits for employers, accessible after, say 3 years of employing new workers, will be a big positive.

In addition we need to review our current system of job-search assistance. For starters, this should be provided by professional placement and search firms, not by State agencies.

Finally, we need to review our current definition of the long-term unemployed to cover all those who are out of the job for longer than 6 months, as well as those who moved into unemployment fro, being self-employed.


This week, former White House economist Alan Krueger identified US long-term unemployment in the US as the "most serious problem" the economy faces right now. He is right. Yet, in the US, long-term unemployed represent roughly one third of all those receiving unemployment assistance. In Ireland, the number currently stands at almost two thirds. The crisis has not gone away. Neither should the drive for reforms.





Box-out: 

With the opening of the first Bitcoin ATMs in Dublin and with growing number of companies taking payments in the world's most popular crypto currency, the crypto-currency became a flavour of the week for financial press in Ireland.

The most hotly debated financial instrument in the markets, it is generating mountains of comments, rumors, as well as serious academic, industry and policy papers. Is it a currency? A commodity, like gold - limited in supply, unlimited in demand? Or a Ponzi scheme?

Few agree as to the true nature of Bitcoin. Bank of Finland denied Bitcoin a status of money, defining it as a commodity of sorts. Norway followed the suit, while Denmark is still deliberating. Sweden classified Bitcoin as 'another asset' proximate to art and antiques, the U.S. Internal Revenue Service - as property.The European Banking Authority is clearly not a fan, having ruled that "when using virtual currency for commercial transactions, consumers are not protected by any refund rights under EU law." In contrast, German authorities recognise Bitcoin as 'a unit of account' as do the French.

Financially, Bitcoin is neither a commodity nor a currency. Bitcoin does not share in any of the main features of commodities. You can't take a physical delivery under an insured contract. You cannot use it to hedge any other asset classes, such as stocks or other currencies. And it is not a currency because it has no issuer who guarantees its value. Nor can it feasibly serve as a unit of accounting and store of value, given extreme levels of price volatility.

Thus, one of the more accurate ways is to think of Bitcoin as a very exciting, interesting (from speculative, academic and practitioner point of view) financial instrument. For now, it shares some properties common to the dot.com stocks of around 1996-1998 and Dutch tulips ca 1620-1630, the periods before the full mania hit, but already showing the signs of some excessive investor confidence. So plant your seed with care.

Wednesday, December 1, 2010

Economics 1/12/10: Live Register

Live Register data was out today, throwing some positive news into the generally adverse newsflow. The headline figure is that November LR has declined 4,200 in seasonally adjusted terms month on month.

This follows declines of 5,400 in September and 6,200 in October. In 11 months through November we are still clocking and increase of 9,900. Expressed in weekly terms, chart below illustrates the dynamics.


Now, net average and monthly changes:
Seasonally-adjusted implied unemployment rate dipped slightly again, for the third month in the row:
Unemployment, as estimated by the LR, now stands at 13.5%, having slipped from the high of 13.8% back in August. It is impossible to tell, based on LR, whether the moderation is driven by contracting labour force (with LR dropouts) or emigration (ditto) or outflow of LR recipients to education, or all three. However, some reduction in new jobs destruction can be expected over a period of time of 3-5 months, given the level of jobs destruction prior to mid 2010. Whether this is sustainable trend or a 'dead cat bounce' effect is a matter of time.

One possible glimpse at what is going on relates to the males LR numbers, which has fallen by a larger proportion than female in November. Males unemployment was much faster to rise and started to do so earlier in the cycle, which means that males are now more likely to come off LR and also to emigrate. However, the emigration story might be overplayed here. There was a monthly decrease of 4,698 (-1.3%) in Irish nationals on LR and an increase of 147 (+0.2%) in non-Irish nationals. So, with non-nationals more likely to emigrate (return migration or movement to another third country for employment), these numbers suggest that emigration is most likely not a significant contributor to the LR changes.

On the other hand, based on occupational groups, the encouraging signs are clearly evident:
  • The largest percentage decrease was in the Professional group (-6.0%), followed by the Clerical and secretarial group (-3.9%) - potentially, a sign that professional services are starting to stabilize
In contrast,
  • In the year to November 2010 the largest percentage increase was in the Other occupations group (+11.2%), while the next largest increases were in the Personal and protective service (+8.8%) and Sales (+7.1%) groups.
  • The largest percentage decrease was in the Managers and administrators group (-3.7%).
So overall, the numbers would be cautiously optimistic, at least as far as potentially signaling a bottoming out of the jobs destruction cycle.

One point of pressure that remains is the duration of unemployment:
  • There was a monthly unadjusted decrease of 7,270 (-2.6%) in short term (less than one year) claimants on the Live Register in November, while the number of long term claimants increased by 2,719 (1.8%). This clearly shows that transition into long-term unemployment continues.
Likewise of concern is the quality of employment (although, of course, having at least a part-time job is much better than none at all):
  • In the year to November 2010 the number of casual and part-time workers increased by 6,578 (+8.9%).

Thursday, August 5, 2010

Economics 5/8/10: Live Register - up & up, again

Live register is out today with some poor news: the seasonally adjusted LR rose from 444,000 in June to 452,500 in July (+8,500 mom).This year to July 2010 LR rose by the cumulative total of 34,403 (+8%).

The latest increase in LR is marked by women signees leading males signees by 4,600 to 3,900. This suggests that (a) services sectors are more likely to show accelerating contraction in employment, and (b) the trend for jobs destruction in higher value added activities is still running strong.

This is confirmed by LR new data on occupation breakdown of lost jobs. Per CSO: "All occupational groups showed monthly Live Register increases in July. The largest percentage increase was in the Professional group (+12.3%), while the smallest percentage increase was in the Craft and related group (+0.1%). In the six months to July 2010 all occupational groups showed Live Register increases with the largest percentage increase in Professional (+22.8%), while the next largest increases were in Clerical and secretarial (+15.6%) and Sales (+13.0%). The smallest percentage increase was in the Craft and related group (+0.1%)."

So for the headline impact of the news - take an average weekly earnings (Q4 2009) at €716.09 (€37,237pa), take the average professional grade weekly earnings at €793.35 (€41,254pa), apply tax rates consistent with these earnings at €3,963-5,610 net tax liability, plus €1,225-1,386 PRSI, plus €1,489-1,650 Health Levy and €745-825 Income levy. Net loss to the Exchequer of tax revenue alone is €7,422-9,471. Employer-side taxes lost are ca €1,250-1,400. Now, add to this the cost of unemployment benefits, loss of Vat on private health insurance, provision of public benefits, such as health etc - you have total cost to the Exchequer of €28,040-30,240 per each new signee.

So July figures are signaling a hit on the Exchequer balance of ca €257mln over the year - just like that, one month worth of newly unemployed.


The average net weekly increase in the seasonally adjusted LR was 1,700 in July or virtually identical to June figure of 1,725.
Monthly rate of change accelerated in July to 8,500 up from 4,900 in June and marking the fastest rate of monthly increase in a year to date, and the highest rate of increase since July 2009:
The standardised unemployment rate in July is now at 13.7% up from 13.4% in June. This compares with 12.9% in the first quarter of 2010, the latest seasonally adjusted unemployment rate from QNHS.
Some final comparatives:
  • Weekly net increases average from January 2008 through July 2010 were 2,102 - above the July average weekly net rate of increase of 1,700. However, over the last 12 months, average net weekly increases were 386 - well below the figure for July;
  • Monthly average rate of increase in LR was: January 2008-July 2010 = 9,100, 12 months to July 2010=2,783. July 2010 monthly increase was 8,500.

Tuesday, April 6, 2010

Economics 6/04/2010: QNHS - the figures of despair

Time to take a closer look at the latest data from Quarterly National Household Survey - released a week ago. The focus below is on less recognized trends, so endure the charts...

Chart above shows the dramatic declines in our labour force and an even more dramatic decline of those in the labour force who are currently employed. In effect, unemployment has consumed two years worth of gains in jobs, plus another 3.5 years worth of increases in participation. Overall, we are now back in Q2 2004 when it comes to employment figures.

As a result, unemployment soared, but what we tend to forget in looking at the headline figure is that long term unemployment - lagging ordinary unemployment by some 12 months or more - is now precipitously rising...
Chart above shows that contrary to all the talk about 'bottoming out', the latest fall-off in unemployment recorded in Q4 2009 is seasonally consistent with normal patterns, implying that in all likelihood, unemployment figures will remain on the rise from Q1 2010 on.
Looking at employment changes broken down by occupation, it is clear that the crisis has seen most of jobs destruction focused at the bottom of earnings distribution - in areas that are less skills-intensive. There are, most likely, several reasons for this:
  • Professional and Managerial grades are usually occupied by people with longer on-the-job tenure, making them more expensive to lay off, and more likely to be part owners of businesses and professional practices;
  • Sales and Other are more flexible workforce components, linked closely to internal demand;
  • One interesting change is amongst operative workers. This category includes some construction workers, but in general, it does appear to suggest that exporting sectors growth over 2008 was more likely underpinned by transfer pricing by multinational rather than by real expansion of physical production.
Overall, however, it is worth noting that occupations with greater human capital intensity of production are holding up much much better than those where people are closer substitutes for technology and machinery.

Change in working hours also reveals some interesting features of the changing labour force:
We clearly are having a secondary crisis in terms of under-employment, whereby workers might be retaining jobs, but their hours worked are being cut back dramatically. Percentage of full time jobs has clearly declined, while part-time jobs are on the rise.

And unemployment is becoming a long-term condition for an increasing number of workers:
The numbers are pretty self-explanatory, except that one must add to these figures an observation - long-term unemployed are much harder to shift off the welfare than those in shorter term unemployment. Note that 29,400 long-term unemployed back in 2007 were pretty much unchanged since the beginning of the century. Since then, however, we just added 59,700 more of those who are risking to becoming permanently unemployed into the future.
While unemployment increases (chart above) were the feature of 2008 labour market collapse, job seekers (both in education and outside), underemployment rises and full-time employment fall-off were the main features of of 2009. These are likely to remain dominant in 2010 as well as unemployment reaches deeper into skills distribution over time.

This is confirmed in the following chart:
Notice that S3 and S2 (broader) categories of stressed workers are rising faster through out 2009 than the more narrow unemployed category. Should the positive move in Q4 figures be reversed (see above discussion), there is significant likelihood that these broader categories will continue to increase at a faster pace than simple unemployment measure, further increasing surplus capacity in the economy and putting more income uncertainty onto the shoulders of those still in full-time work.

Returning back to the issue of skills: chart above shows that both in 2008 and 2009 workers with greater human capital attainment were in lower risk of unemployment than those with lower educational attainment. Of course, this is a result of several forces:
  1. Workers with higher educational attainment tend to be more productive in same occupations;
  2. Workers with higher educational attainment tend to have better aptitude;
  3. Workers with higher educational attainment are also more likely to engage in continued up-skilling and on-the-job training;
  4. Workers with higher educational attainment tend to possess more flexible sets of skills;
  5. Workers with higher educational attainment tend to be employed in more competitive and exports-oriented sectors and companies, etc.
All of this, however, suggests that human capital matters even in amidst a wholesale collapse of the labour market experienced in Ireland.
And, as chart above shows, workers with higher human capital attainment are also more likely to be fully engaged in the labour force. Which means two things:
  1. Human capital is an important differentiator in a recession; and
  2. Those currently fuelling longer-term unemployment are more likely to be with lower skills, and thus are more likely to exit labour force and remain outside the labour force for a much longer period of time.
In short, we are now at risk of creating a permanent underclass of under-skilled and under-employed.

And to conclude - two charts on comparisons between Ireland and the rest of EU27:
Participation figures above clearly show that our labour force has experienced a much more dramatic collapse than in any other country in the European Union. At the same time, our unemployment has risen less drmatically:
Which suggests that the gap between us and the worst performing European countries (Spain and the Baltics) masks a much more troubling reality: Irish unemployed are much more likely to drop out of the labour force (and thus out of unemployment counts) than those in other European countries.

This, of course, is a sign of much deeper despair.