Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

Long-term unemployment must rise to top of the agenda in 2010

Last October, I painted a rather bleak picture of Ireland’s unemployment situation, with the percentage of private sector jobs lost in the economy much closer to the 1930s USA than its contemporary US counterpart. At the end, I wrote:

Given the severity of the jobs crisis, it is important that once we get in to the new year, the limelight, which been so hogged by NAMA and the Government’s finances, can move back to our jobs crisis. The €11bn in lost earnings from the 300,000 job losses is an annual cost to society that’s easily comparable to our worst nightmares about public finances or the banking system. And that’s not even factoring in the human costs of unemployment.

We are now in that new year. NAMA is going ahead – we can only hope it does so in strict accordance with its principles, thereby minimising the taxpayers’ exposure. The Government finances, by general consensus, have at least turned the corner, although as noted at the time, it can hardly be called the toughest Budget private sector workers are going to face over the next few years. The property market continues to adjust, improving Ireland’s competitiveness but also pushing more households into negative equity. It should be remembered that falling property prices are only a real problem for those with mortgage debt (about one third of households), and even then, it is only those in negative equity (about one in four mortgage holders) that we should really worry about.

In particular, there are potentially significant costs to society when there are large numbers finding it difficult to pay back their mortgage – latest figures suggest that this is about 3% of mortgage holders. And the principal reason people find it difficult to pay back their mortgage is unemployment. Indeed, of all the major problems facing the Irish economy – its banking system, its government finances, its property market and its labour market – it is the latter, the problem of unemployment that so plagued Ireland during the 1980s, that looks most intractable.

Last week, the CSO published final figures for the Live Register in 2009 across a range of headings, including age, gender and live register scheme. (Today, incidentally, it will be publishing more detail, including signers-on by area.) The graph below shows the ratio of those in receipt of Jobseekers Benefit (a proxy for those recently employed but now unemployed) to those in receipt of Jobseekers Allowance (a proxy for those in long-term unemployment of more than 12 months). Even at the height of our employment boom, there were close to 100,000 people in receipt of Allowance, the vast majority of these being termed the ‘unemployable’. At the same time, there were typically about two-thirds of that amount (60,000-70,000) in transitional unemployment, i.e. in receipt of Benefit while presumably “between jobs”.

Ratio of those on Jobseekers Benefit to those on Allowance
Ratio of those on Jobseekers Benefit to those on Allowance

Since the start of 2008, the number in receipt of Benefit, i.e. the fresh-off-the-boat unemployed, soared, reaching almost 200,000 in early 2009. At that point, there were more in receipt of Benefit than there were in receipt of Allowance. Since then, the number in receipt of Benefit has fallen by almost one-sixth. At the same time, the number in receipt of Allowance has grown a further 10%. The net result is that the ratio of new unemployed to old unemployed has fallen rapidly back to its pre-bust level – although the actual numbers for both are much higher.

If this trend continues over the course of 2010, the priority for government will not be to stem the tide of job losses, a Knut-ian task from 2009 at any rate. The priority will be to tackle the scourge of long-term unemployment, with far greater numbers (250,000+) facing that prospect than freshly out of work (perhaps 100,000 this year).

The second graph below divides up the top-line numbers across three dimensions: blue is male, red is female, light is under-25, dark over-25, dashed line is those on Benefit (i.e. new unemployed), solid line is those on Allowance. All are set to 100 for 2006 Q1, and you can see that very little has happened by late 2007. By early 2009, though, it is clear that men newly unemployed are the biggest casualty of the recession. Over the course of 2009, they have started to turn from dashed line into solid line.

Of all the groups, it is men under-25 who are faring worst. The number of women under 25 in receipt of Benefit fell 28% in the final quarter of the year, and it’s not a case of all moving over to Allowance, as the numbers on Allowance also fell, by about 7%. In contrast, the number of men under 25 in receipt of Allowance has trebled from pre-bust levels and shows no signs of falling yet.

Live Register, by gender, age group and category
Live Register, by gender, age group and category

So the good news is that fresh job losses have eased back significantly. The bad news is that long-term unemployment is becoming more entrenched, particularly in our young men. The government should now respond to the jobs crisis with the singularity of purpose it found for our banking system last year.

However, it’s one thing finding out what your priorities should be. It’s a much different – and more difficult – exercise to tackle the problem of long-term unemployment. It’s my hope that this will be a topic of focus on the blog this year. For a preview of my thoughts, here’s the summary of a one-line-on-each sector-by-sector analysis I did over on the Central Bank forum on thepropertpin:

Where might our growth come from, aside from a gradual pick-up in some domestic activity? I would pick (1) ICT, (2) finance & insurance and (3) professional & technical activities, with some potential from perhaps one of electricity, tourism, education and the arts.

  • Kevin Denny ,

    For those of us who remembered the 80s, the rise in long term unemployment is eerily familiar. One thing to bear in mind is the implications for the Phillips Curve. Recall the basic argument is that unemployment should help keep the labour market in check and not let wages run away with themselves. The evidence is, as I recall, that long term unemployment is less effective at doing this. People in long term unemployment get used to it & search less hard and/or are viewed as unemployable by firms. So basically you are heading towards hysteresis: if you don’t correct the temporary shock quickly enough then its effects can become permanent and you may get the “lost generation”.

    • Stephen Kinsella ,

      @ Ronan and @ Kevin,

      Of course, there is always the safety valve of emigration, which may lose us the generation more quickly than a drift into LT unemployment.

      • kevin denny ,

        @Stephen Interesting: from a labour market point of view, emigrants provide even less downward pressure on wages (bad), but are not unemployed (good) but of course its a loss of resources.

        • Joseph ,

          I couldn’t agree more with you Ronan but will they make it a priority? Will they actually do anything about it at all let alone make it a priority? I fear that if they don’t (and I have grave doubts) then Ireland will simply be rotting from the inside out. I certainly don’t see any evidence of the present government putting proposals, plans, strategies, etc. on the table.

          • Pete Murphy ,

            Unemployment, both in the U.S. and the world as a whole, marches ever higher because the field of economics doesn’t account for the relationship between population density and per capita consumption.

            Following the beating the field of economics took over the seeming failure of Malthus’ theory, economists adamantly refuse to ever again consider the effects of population growth. If they did, they might come to understand that once an optimum population density is breached, further over-crowding begins to erode per capita consumption and, consequently, per capita employment.

            And these effects of an excessive population density are actually imported when a nation like the U.S. attempts to trade freely with other nations much more densely populated – nations like China, Japan, Germany, Korea and a host of others. The result is an automatic trade deficit and loss of jobs – tantamount to economic suicide.

            Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

            If you‘re interested in learning more about this important new economic theory, then I invite you to visit my web site at http://PeteMurphy.wordpress.com.

            Pete Murphy
            Author, “Five Short Blasts”

            • Brian J Goggin ,

              “… economists adamantly refuse to ever again consider the effects of population growth.”

              Google Scholar finds 536,000 documents with “economics” and “population growth”.

              But I cannot confirm that they were written by economists.

              bjg

              • Halfaloaf ,

                We also need to kill the apathy that is in the country.
                The business community has the bunker mentally and the unemployed those over 6 months seem to simply accept where they are.
                The politicans live in a bubble so I would have to agree with Joseph in relation to the country rotting from the inside out

                • Ronan Lyons ,

                  Thanks for the comment Tom, and great to see halfaloaf.ie still going strong.
                  I would agree with both yourself and Joseph – we don’t need the government trying to do everything. It should think of itself as the referee, making the conditions right for domestic and foreign business to employ people, rather than the manager, trying to be all things to all men. After all, the government is unlikely to be able to second-guess the world economy.

                  • Senan ,

                    As now seems likely, when European interest rates begin to rise later in 2010, then many newly unemployed ‘professionals’ and even employed professionals are going to get a shock.

                    Already I hear reports of some banks considering further (on the back of those in 2009) variable rate increases soon. Families that have relied on a certain level of income and now have unemployment to deal with, will hit problems.

                    Although the government are currently concentrating on stabilisation, I’m sure they must have some form of plan to tackle this. Even from a self-serving point of view; employment required for tax revenue, and required to keep voters happy.

                    • subhodeep banerjee ,

                      unemployment is a universal problem and it should be tackle by the UN, not by a single country it is managed.

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