Thursday, July 4, 2013

4/7/2013: Jobs Creation by State Agencies

Per press reports today: "IRELAND'S enterprise development agencies created nearly 9,000 net jobs in 2012, new statistics outlined." The reports reference the findings of the Forfas 2012 Annual Employment Survey (linked at the bottom) which showed that "total permanent full-time employment in agency-assisted companies operating in all sectors amounted to 294,785 in 2012, a net increase of 8,975 jobs or 3.1pc."

The quoted statement above is nonsensical and should not have been made. Here's why:

  1. These jobs were created by companies working with the agencies, not by agencies themselves. In simple terms, "Ireland's enterprise development agencies" have not created any of these jobs, although they might have been helpful in bringing these jobs to Ireland or helping companies in developing activities that resulted in these jobs creation. 
  2. In some instances, working with the agency involves not much more than obtaining an investment from an agency-supported fund that is not actively administered or managed by the agency. In this case, a company 'client' of the agency does not have much of an engagement with the agency at all. In a sense, such jobs creation by the agency amounts to the jobs creation by the financial investors - they provide funds for jobs that are to be created - with or without them, sometimes - but they do not actively 'create' jobs.
  3. Net jobs created claim relates to gross increase in total employment during 2012 over 2011 final figure. This increase in its entirety does not accrue to the company activities with the agencies. For example, a mature enterprise can be engaged with an agency in developing new markets for exports. The enterprise might hire new workers for work totally unrelated to its engagement with the agency. Should the credit for these jobs additions go to the agency? Let's put this differently: suppose you broker a deal between companies 1 & 2 to purchase good X by 1 from 2. Should you get credit for company 1 buying from company 2 good A as well? 
  4. Net jobs creation on the year 2011 assumes that these are new jobs added. This is also not true. It might be a job that replaces a layoff or redundancy that took place in 2011, but was not filled for 3-4 (or longer) months and thus hiring took place in 2012. What happens? Level of 2011 employment that serves as a base decreases by 1 job, level of employment in 2012 increases by 1. New jobs created = zero, yet Forfas study reports a net jobs creation of 1.
  5. The survey includes Ireland-based MNCs, which have multi-annual jobs rolls, so the point (4) above applies to their activities even more significantly than for domestic enterprises. 5,747 of the 8,975 jobs were 'created' in foreign-owned MNCs
  6. The survey also includes a number of larger internationally-trading Irish firms. Some of the jobs added could have been created and announced before the company was engaged with the state agency, but their filling was delayed until 2012 when the company was engaged with the agency.
  7.  Many of the firms covered in the survey are mature and established firms and are no longer 'assisted' in any meaningful way by the state agencies, since they have long-term established operations in Ireland. A standard practice in business is when a broker of a deal gets a commission for the deal. The broker usually ceases to be compensated for any future deals signed by the two companies engaged in the original transaction once the original transaction is over. In the case of the Irish state agencies, the credit seems to flow unabated regardless of whether their work does directly contribute to the jobs creation or not.
  8. In some cases, 'net jobs created' by agencies-assisted companies can be actually poorly accounted jobs rotations within the economy. Example: an agency providing outsourcing service to, say, Nama moves into the country assisted by one of the international FDI agencies in the state. It creates 100 jobs that are counted as new. Yet it takes on 100 staff from the previously closed domestic agency that was not assisted by the agency. Net jobs creation in state agencies assisted companies +100. Net jobs creation in Irish economy = 0.

These are at least some of the reasons why both the 8,975 jobs additions can be questioned and why in general none of these jobs were 'created' by the state agencies and not all of these jobs relate to the activities with which the state agencies are engaged.

There is also a reason to question the very word 'permanent' jobs. If they are permanent, then why has the employment levels in agencies-assisted firms still running below 2006 peak? Permanent is permanent, right?

And it really is not needed to make silly statements of this sort - some of the agencies - e.g. EI and IDA - are doing excellent work in many areas and are wanting in other. This is natural for any agency and any enterprise. The point is not to brow-beat them for the latter nor to ignore it, and it is also not to over-praise them for the former. What is needed is more precise and more transparent accounting and reporting. Alas, Forfas doesn't really deliver on that and never did. Instead we have a report full of chart, numbers and tables that offer little deep insight and even less real analysis.

Full Forfas report is here:

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