economics 16/12/2009: Unemployment and Jobs Destruction in Ireland

QNHS data is out for Q3 2009 and guess what... well, nothing new, really. Official unemployment rate is now 12.4% - just 10bps away from the Live Register-based Q3 average estimate of 12.5%. The cheerleaders are shouting 'A slowdown in the rate of growth in unemployment! Happy times ahead!'

But the real world data shows much darker picture. The biggest problem with unemployment is how you define it. If a person would like to have a job but is so discouraged by the labor market that he or she decide to stop looking for one, then they are not in the labor force and thus are not unemployed. Similarly, if a person had a job and upon losing it moves out of the country is search of better prospects elsewhere, then they are no longer unemployed. And if a person, disheartened by the prospect of long-term unemployment simply stops answering CSO phone calls, then she is also not unemployed.

But in the real world, all of these people are unemployed. All of these people's lives are lost in the economy even if they are not measured by the CSO.

This is not to criticise the ways in which CSO collects data. That is not the point. The point is that we need to understand just how many jobs were lost and not regained during the current crisis. And this we can glimpse from the QNHS data.

In Q3 2009 total employment fell 40,200 on Q2 2009. In 12 months to the end of Q3 2009, Irish economy shed net of 183,400 jobs - the rate of loss of 8.8% or the highest rate of jobs destruction on the record. In the course of this recession, we have now lost some 236,300 jobs.

Let's do the maths. The above losses imply:

• €13, 450 million in lost economic activity in Ireland
• €1,500 million in lost income tax to the Exchequer (using lower rate and no income levies)
• €3,750 million in lost consumption
• €675 million in lost VAT receipts, and so on

Notice that all of these jobs came out of the private sector and a number of contractors to the public sector and thus these losses cannot be offset even partially through reduced Exchequer wage bills.

And the problem of falling labor force is a sticky one. The overall participation rate has contracted from 64.2% in Q3 2008 to 62.5% in Q3 2009.

Much of the fall in the labor force is being driven by:

• long term unemployment pushing people into permanent welfare traps;
• exits from the workforce by students who are at a risk of completing new education and not finding new jobs afterward (for 15-19 yo participation rate has fallen to 22.7% from 30.8% a year ago, while for 20-24 yo group it stands at 72.9% as opposed to 77.4% a year ago), and
• emigration.
  

Last year, some 45,000 non-Irish nationals left the country, as in left their gainful productive employment in this state and moved on to be productive elsewhere. That's not so good for our economy. Many worked in the construction and domestic services sector and had skills beyond their jobs. Ireland is losing on their productive potential. But many worked in traded services and here the losses are even greater. The future of Irish economy is in traded services first and foremost - that is the elusive 'knowledge' economy we've been pursuing (even though our policymakers have no idea that this what it is). This economy requires more people with cultural, linguistic and skills sets that are distinct from our average 'national' skill-set. Ireland is losing now on our future productive capacity as well as on the immediate one.

And so on the net, CSO data shows that while unemployment climbed by roughly 120,000 over the last 12 months, the actual fall in employment was 185,000 or 65,000 greater. It is the net loss of jobs figure that is more telling of the realities of Irish unemployment than the headline unemployment rate.

Finally, courtesy of Ulster Bank - a table showing that unlike in earlier QNHS releases, Q3 saw industry displacing construction sector as the main source of jobs destruction:
This is another batch of bad news for anyone who, like our Minister for Finance, believes that things are past their worst. In addition, notice that wholesale & retail trade is about to take over construction as the second greatest contributor to unemployment. Wait until Christmas sales are over for that...