Saturday, November 28, 2009

Economics 28/11/2009: Irish labour market snapshot

An interesting paper on labour market published last week provides a good insight into pre-crisis comparatives for Ireland vis-à-vis other Euro area states, the UK and the US. In general, in labour markets, there are processes of job creation and destruction, which are related (but not necessarily perfectly) to workers’ hirings and separations.

Literature on these suggests that “idiosyncratic firm-level characteristics shape both job and worker flows in a similar way in all countries”. But is it so? Do national characteristics matter?

Andrea Bassanini and Pascal Marianna of OECD (IZA Discussion Paper 4452) used cross-country data based on comparable methodologies “to examine key determinants of these flows and of their cross-country differences”. In general, the authors found “that idiosyncratic firm (industry, firm age and size) and worker (age, gender, education) characteristics play an important role for both gross job and worker flows in all countries. Nevertheless, …even controlling for these factors, cross-country differences concerning both gross job and worker flows appear large and of a similar magnitude.”

In summary, “both job and worker flows in countries such as the US and the UK exceed those in certain continental European countries by a factor of two [suggesting much more enhanced worker mobility and jobs creation and destruction in the UK and US]. Moreover, the variation of worker flows …is well explained by the variation of job flows, suggesting that, to a certain extent, the two flows can be used as substitutes in cross-country analysis [in other words – the structures underlying jobs creation and jobs destruction are largely country-specific]. Consistently, churning flows, that is flows originating by firms churning workers and employees quitting and being replaced, display much less cross-country variation.”

You can read the whole paper here, but I will focus on summarizing its findings regarding Ireland. Authors used a limited sample for Ireland (2000-2003), but it was the sample that covered years before the property bubble. In other words, it was a sample closer to the real Irish economy in action, only less pumped up by the steroids of overspending and crazed investment boom.

Table below based on the paper findings, but recompiled by me to illustrate Irish comparatives, shows Ireland as a country with labor markets that are average in their behavior when compared to other developed economies. Contrary to the claims of our political leaders (who painted Irish labour markets as being ‘socially’ focused) and their opposition (who painted Irish labour markets in the hues of cut-throat capitalist competition), we are what we really are – averag

Note: Excess job reallocation is a measure of simultaneous and off-setting job creation and job destruction by different firms belonging to the same group. In other words, excess job reallocation represents the reallocation of labour resources between firms within the same group whereas the group’s absolute net employment change provides a measure of reallocation across different groups of firms (e.g. different industries).
Table above shows probability of worker reallocations (changes in employment status or employer) per annum, probability of reallocation due to excess – excess in jobs turnover over the absolute change in net total employment, probability of new hiring in a year and probability of a layoff or firing (separation). Miracle is – we are very close to an average, even though Ireland was experiencing stronger growth in 2000-2003 than majority of the countries listed in the table.

Another table above shows that in terms of differences between reallocations and excess layoffs, hirings and separations, Ireland is sports a difference from the average only in terms of reallocations net of excess, or that component of the probability of changing work status or employer that is not accounted by movements of jobs within the same sector. In this area we have a higher rate than average, most likely reflective of former ICT sector workers being shifted to new sectors in the wake of the Tech Bubble collapse. Another area of difference relates to hirings in excess of separations, which implies that Irish economy was net additive of new jobs at the time at a strong rate. All other parameter readings are average.

So for a pictorial representation next. Higher worker reallocation rates – similar to other growth economies of Denmark, Finland, Spain, UK and US. Similarly higher excess worker reallocation. Slightly above average hirings rates and average separations.

And as far as differentials go:
Below average excess less hiring reasons for reallocations, slightly above average excess less separations (jobs destruction was rather weaker in Ireland in this period than in the average economy in the sample) and above average hirings less separations – again for the same reason of rising jobs creation.

So what about ‘gender issues’ in the workforce? Surely here we have lots of ground to gain as our Irish Times pundits on economy have been busy shouting about various gender gaps and glass ceilings?

Well, as far as hiring rates by gender go, we are below average for both men and women, and remarkably, there is no difference evident by gender whatsoever. The only other country with such levels of hiring ‘glass ceilings’ is… Sweden. That said, our overall mobility due to hiring was a bit weaker than the average. But not by much.

Separations by gender? Do evil capitalists fire women more frequently than men in Ireland?

Yes, rates of separation from employer for women were in excess of those for men in Ireland, but both rates were below the group average and the differences across gender lines were less pronounced in Ireland than in… Sweden, Norway, Finland, Denmark, and Switzerland. Either these countries are even more sharkish capitalist economies or there is no evidence of Ireland’s labour markets being much tougher for women then for men.
Chart above shows that in terms of gender imbalances in reallocation rates by gender, Ireland was in the below-average tier of the sample countries. And that mobility gap between men and women was smaller than the one found in many other social(ist) democracies of our Europa Land. Average we were in this category as well.

If there was no real need for a radical Government intervention to protect Irish women from sharp labour market practices of employers, what about the famous age gap? May be here there we find a smoking gun?

Not really. All age groups in Ireland saw similarly below average rates of mobility due to hirings. And overall age gap was similar as that of the average economy. Nothing dramatic happened here, folks.
Nor were our separation rates by age category drama-filled either. Below average – reflective of tighter labour markets in general and employers’ desire to hold on to workers in the age of rising wage inflation. Only the older cohort of workers experienced more jobs turnovers than average, and then not by much. For a much younger society than our peers this suggests that there was hardly a difference by age in separations after all.

Worker reallocation rates by age – same story.

Now, we’ve all heard about our marvelously educated labour force. With so much education, would Irish economy treat various education cohorts differently in the labour market? Afterall, a handful of less educated workers would really stand out in the sea of excellence that is Ireland Inc’s workforce.

Alas, the rates of hirings were below average in Ireland for all education groups, ecept highly educated. Now, here is a strange thing – if we had a highly educated labour force then, this would imply diminishing demand for such oversupplied ‘commodity’. In turn, demand rocketed. Either we all were working for high-education-intensive companies (MIT Media Labs?) or our ‘high’ levels of education were just average in quality/quantity…
Separations tell the same story – these are movements of workers out of jobs and they are… below average for highly educated and average for medium educated and low for low educated. People seemed to have been relatively happy to hold their jobs.

And so on to reallocations rates:
Below average for all…

And so, positing a question: in 2000-2003, were Irish labour markets closer to Boston or to Berlin? The answer, alas would be a disappointing neither. We were, in fact, closer to that inextant Kingdom of Average. Time to stop class warfare?

1 comment:

MK1 said...

Hi again Constantin,

The data is an interesting window on the labour markets in different countries, eg: the Hirings and Seperation data.

However, I think we need to be careful drawing conclusions as to the performance of a certain countries labour market, as there are cultural and structural differences in each, so it is very much apples to oranges.

Ireland may be seen to be average in Hirings at 22.1 and Seperations at 19.5, but the average is boosted by the US, which is not very "friendly" to its workers.

There are clearly cultural differences in Germany for example where Seperations were 17.3 compared with the US figure of 25.1. Ireland's figures are very close to the UK.

What surprised me is how low Greece was, as peple tended to stay in their current jobs. Also Denmark, which is clearly closer to Boston than Berlin on this metric, as well as France. Ireland being average is good.

Overall, the general rule of thumb applies that about 20% of an employers workforce will leave each year in a reasonably operating labour market and economy.


ps: I have not been able to read all your recent posts as you have been very prolific, and I am wondering if you are publisging too much data for readers to assimilate and absorb!