This is a hyperlinked version of a column published in the Irish Examiner on Saturday 28 April 2012
Recent research for the USA suggests that not only are many recoveries from crashes etc jobless for a long time, but that they also see the destruction of large numbers of ‘middle class’ jobs. When recoveries happen jobs do come back but these are typically at lower skill and wage levels than before or at very high end. Middle jobs tend to get squeezed. This trend has been noted not just in US and UK research but is also an increasing feature of growth patterns in developing countries. This is not to deny the massive growth in middle jobs in emerging countries but to suggest rather that the creation of jobs tends to uneven not just in geographical but in distributional terms. While growth is expected to return to the Irish economy, at least by measured GDP figures, the jobless total will fall very very slowly. The historic experience of Ireland is that respectable growth levels can be combined with high unemployment and that it takes a very long time for jobs to follow growth. In that context it is nice to see that there now appears to be a move to include in the European policy mix a growth and jobs agenda.
The difficulty we face is that regardless of the fiscal treaty we are running a worryingly high current budget deficit. While it is undoubtedly the case that the treaty will lead to us having to run decades of surplus budgets, the immediate problem is that some degree of austerity is a given to balance the books. Working off the debt will take much more. To some austerity is in and of itself a good thing, believing as they do that there is such a creature as an expansionary fiscal contraction. That such even existed is doubtful. Recent BIS work suggests that the external environment is essential to restoring growth. This centrality of the external environment is all the more important for Ireland, as the entirety of Irish growth in 2012 and 2013 is forecast by the EU to be driven by net exports. Austerity, at least until such time as we are able to return to normal borrowing structures, will continue to drag on the Irish domestic prospects. Thus we face a dilemma – we need to restructure our domestic finances and to do so in an environment where there is little evidence that such restructuring in and of itself drives growth. PaulKrugman has suggested that the linkage between reduced deficits and austerity is one that is weak and lagging. Debt does act as a drag on growth but it is also important to note as does recent research that slow growth also leads to debt.
All of this leads us to see an Irish economy that is likely to struggle to create jobs. We have failed over the decades to create an economic system that can drive jobs and opportunity for our population. There are over 500,000 Irish born people in the UK, the largest part of them undoubtedly there as a consequence of economic migration. It is often suggested that governments cannot create jobs, but can create the environment for jobs. In the modern globalized economy that environment all agree is one where people are skilled in languages, math, science as well as interpersonal skills. And yet we are not investing in these – we have dropped language skills from the lowest level of school where children are most receptive, our relative achievement levels in math are poor, there is no coherent IT teaching in second level schools etc.
Government plans for dealing with these issues often tend to chase ideas and attempt to predict what the markets think will be required in a number of years time. But all the evidence is that industries change and can change rapidly. Take two examples in Ireland – canals and communications. The south west of Kerry was in the late 19th century a hub of high tech communication with transatlantic cables coming ashore and sustaining a significant infrastructure of highly skilled workers at the cutting edge of technology. And yet, with the advent of satellites this disappeared very rapidly. In the 18th century canals were the technological innovation that transformed transport. A visit to Belmont mills in offaly gives a good insight into the scale of goods and services associated with these. Again, canals enjoyed a relatively short life. The key lesson from this is that planning for industries is always going to be fraught but provision of skills to people will always repay.