What will solve the jobs crisis?

This is an extended version of an opinion piece published in the Irish Examiner on Saturday 18 May.

The new government jobs initiative is welcome, in so far as it again demonstrates an acknowledgement by them of the seriousness of the employment crisis. Coming less than a year after the last one, we must however wonder if this will be yet another in the seeming never ending series of job initiatives. This one is ambitious: 100,000 jobs will apparently be created within a short time and no less than 200,000 within a short few years, all but solving the employment crisis if we get any hint of growth. And there is an unemployment crisis. 75,000 persons under the age of 25 are on the live register, and all international evidence suggests that the younger and the longer the duration of unemployment a person experiences the greater a negative effect this has on future employability. Of these 75,000 , 27,000 are on the register for more than one year, 2/3 of these being males.

The longterm effects of this experience on this cohort will be very negative, and in my view this is where any jobs initiatives should be targeted first as they are most in need. The standardised rate of unemployment now hovers around 14.5%, and this in the face of renewed emigration. In some parts of the country this crisis is worse than others : with less than 10% of total population the border region has 15% of the live register and a similar percentage of youth unemployment

We have had jobs announced a-plenty in recent years. The may 2011 initiative was short on numbers, but in subsequent disucssions an Taoiseach noted that 100,000 jobs would be ‘a start’. In 2008 the ‘smart green economy’ announced by the then Taoiseach promised ‘thousands’ of jobs in green energy and up to 12,000 jobs in rural areas consequent on a Rural Development Initiative. The Cloud computing initiative in January 2011 had figures in total for up to 20,000 jobs. The proposals here are mainly sensible if sometimes pious. For the most part they are bureaucratic and technocratic in nature, which is in fact a good thing. For the most part, outside direct employment, governments cant really create jobs, but they can create the business, economic and socio-political environment wherein jobs are created. It is difficult to argue with many of the initiatives. Equally it is difficult to see why a government initiative is required to , for example “Identify any sheltered areas of the economy where competition is restricted and commission studies on such areas where appropriate” (1.37) or “Engage with stakeholders on the findings revealed in credit supply and demand surveys with a view to identifying and addressing blockages in the system” (3.35) or “Run a number of business market development ventures, including two significant projects in 2012” (7.4.14). Were all the aspirant actions contained in the document carried through then a start would be made to the transforming of the jobs ecosystem. But then we will have to ask from where the jobs will emerge/

Where are the jobs? A radical transformation of the employment landscape is not easily achieved. The structure of present day employment is therefore a good place to evaluate the ability of jobs to be created. That is not to say that we will not see the emergence of new poles of employment – it is merely to realise that such will start small and take a long time, years or even decades to generate significant employment. At present the structure of employment is heavily weighted to a few sectors.

What is conspicuously missing from the initiative is the largest single driver of employment – economic growth. Growth is noted as the driver, as the engine, as the catalyst, and this is the case. How can we create jobs in an environment where GDP is forecast to grow by anaemic levels . forecasts for GDP range from 0.5% from the central bank, 0.9% the ESRI, 1% the OECD, 1.1% the EU commission, with forecasts racketing lower the more recently they are issued? The bulk of employment , as of q3 2011, nearly 40%, comes from just three sectors. These are manufacturing, trade and health services. Hightech jobs, as defined by Eurostat, account for less than 4% of all employment. Other large sectors include the hospitality sector and education. Thus, any significant growth in jobs will come from these sectors, and they are all dependent on either government spending (constrained) or economic growth in general. There is a weak statistical realtionship btweeen GDP growth and employment growth, weak as there are many many factors involved other than just the measure of GDP, but a simple rule of thumb is that as GDP rises by 1% employment in that quarter rises by 0.1%. Thus sustained and lengthy periods of GDP growth will be required to reduce the overhang. And there is little prospect of such a sustained growth spurt in the next half decade. It is in that context that we need to assess the jobs initiative, and my assessment is that while worthy and useful it is the merest preperation of the ground for a crop yet to be sown.

Brian M Lucey is Professor of Finance at TCD and Managing Director of Ussher Executve Education

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4 thoughts on “What will solve the jobs crisis?

  1. Neville Shekleton (@NShekleton)

    Thanks Brian. The state could do a lot more to control/influence/reduce areas such as pay & pensions, (particularly higher level pub. & prvt.), infrastructural/utility cost, rent, red-tape, VAT, and non-productive/wasteful activity per McC. To what extent could real action in some/all these areas seriously make up for the employment prospects in this EU low growth scenario?

    Reply
  2. David Traynor

    We need a sustainable environment that creates opportunties and involves collabiration between private sector, training agencies and our education facilities.

    Instead of trying to create technical universities we should concentrate on making these institutions available to firms so that it is firms who are setting the curriculum hence any course of study is designed specifically to give graduates the actual skills and knowledge that can be utilised immediately in a productive manner.

    With Enterprise Ireland now having more influence they can influence, in tandum with IDA, location decisions in terms of FDI, with a view to developing high value regional/industrial clusters as seen in various parts of Northern Italy.

    Reply
  3. Nigel McNamee

    Brian your article shows hhow little thought and effort has been put into the jobs crisis by this weak government.The Oireachtas with a few honourable exceptions are not affected by the crisis and simply don’t care. Especially the Labour TDs

    Reply
  4. O Buckley

    Luckily the reduction in VAT in last summer’s jobs initiative from 13.5% to 9% for certain goods/services (including newspapers) was pro-jobs while the general increase from 21% to 23% would not have been anti-jobs. Otherwise it would look like an exercise in seeming to do something rather than actually doing something.

    Reply

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