Wednesday, November 4, 2009

Economics 04/11/2009: Live Register - don't touch that champagne yet...

While the Live Register figures (out today) have shown some significant moderation trend for some months now, the latest data remains gloomy. There is a misplaced emphasis on reading the headline statistics too much and ignoring the underlying movements of displaced workers.

The conclusion advanced by many analysts is that October figure shows a seasonally adjusted decline in the LR of 3,000 - the largest drop in LR since the 3,900 decline in April 2005 and the first decline since March 2007. Good news.

The headline numbers of people in receipt of unemployment benefits now stands at 422,500 or 62% above the same period a year ago. This calls for a revision of the expect year-end number to below 500,000. Many analysts jumped in with a conclusion that this will mean the exchequer can breath easier now, because each 10,000 fewer people on LR means the savings of Euro100mln to the Exchequer. Hmmmm... I don't think so.

The savings above reflect the assumption that those off LR are moving into jobs. What if they move into the welfare? Ok, 10,000 people off the LR means savings of Euro 100mln from lower unemployment benefits. If you move to supplementary welfare benefits, the cost of these is identical to job seeker allowance (Euro 204.30 per week), but you will also qualify for more assistance. A temporarily unemployed person might be able to pay out of savings for housing and job searching costs and might be staying outside state-financed training and education programmes. A long-term unemployed person will not, implying a massive cost run up for the state. A 10,000 cost basis for an unemployed LR-listed person quickly turns into a 20-40,000 cost tag for a long-term unemployed.

Now, LR data does not give us a breakdown of tenure in unemployment or other characteristics, but what we do know from today's data is that:

  1. Males dominated the reductions in LR numbers with a fall of 2,300 amongst males and just 700 amongst the females. Let me ask you this question - if males increases in LR were driven by construction sector collapse, have any of you seen so many new cranes working in Dublin or elsewhere in the country to warrant 2,300 of these construction workers getting jobs all of a sudden? Neither did I. So most likely, these males are simply exceeding the time limit on unemployment benefits and are now eligible for much more substantial aid available under the general social welfare rates and allowances.
  2. Timing of males unemployment increases suggests that we are now seeing reductions in male unemployment coincident with roughly 9-12 months lag from entry point. What does this tell us? Indirectly, this might mean that those who became now long-term unemployed by official definition are simply opting to sign onto welfare rolls and exit the labour force.
  3. We are in the beginning of a new academic year. Is it possible that a number of those previously unemployed now became full-time students again? It is. While this is great news, as it means that they will stand a chance of enhancing their education, it is not the good news regarding unemployment in this country.
  4. Emigration is another likely factor driving some of the declines in unemployment. Back in September data, details on Irish v Non-Irish nationals on LR showed that the rate of unemployment increases amongst non-nationals was contracting faster than for the Irish nationals. Detailed figures on this matter for October will come out on Friday, so stay tuned.
  5. Lastly, the main bit of information relevant to this analysis. Out of 3,000 fewer LR signees, 2,900 came from under 25-year old group. Only 100 of the reductions came from the over 25 years old group. Incidentally, this suggests that LR reductions due to emigration are most likely impacting primarily Irish nationals leaving the state, rather than Accession states’ nationals going back to their countries of origin.

This speaks loudly in support of my assertion that the following forces (in decreasing magnitude of their contribution to falling unemployment) are at play
  • Labour force exits into welfare benefits;
  • Net outward emigration of the young.

In my view, both reasons offer nothing to cheer about.

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