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:


Brian O' Hanlon said...


The big problem in Ireland, is that we are too metrics based - and this kind of Forfas reporting confirms it. The problem with being too metrics and statistically based about employment is a very serious problem.

During the Celtic Tiger, we could look at the stats - and we could find out we had zero unemployment. Or we had zero point 'something' unemployment. We taught that in Ireland, that everything was going hunky dory - and give those great guys down at Fas and Forfas and everyplace else another big rise, and more perks, for a job well done. Well, the problems that we have in Ireland, were as evident, and even more poignant back when we had zero unemployment - as they are today in 2013, with thirteen/fourteen percent.

What we are great at doing in Ireland is putting bums on seats, and building more office buildings using bank lending, to put more and more bums on more and more seats. But that's about it. It doesn't matter whether these folk were short of skills, or un-able to perform their task, or the fact that many were not adding any value at all for their employer(s). The fact was, we had bums on seats. It goes back to an Ireland, when there was nothing except state jobs - and a lot of the state jobs, were only bums on seats. It wasn't a case of getting a job to do a job - in Ireland it was a case of getting something to avoid the social recrimination and shame of being 'out of work'.

What being 'in work' meant though, was something very basic, and very far below what we might term, adding value for an employer. There is an old saying, from a book about Dublin city between the wars, "You could be Lord Mayor of Dublin city, but you couldn't be a brickie's labourer". Because in those days, in Dublin, which was only a garrison town for the British, and no more, labour was dished out sparingly, with all kinds of weird and wonderful rules and procedures, like it was the last few drops of water in the middle of a sandy desert. It means that even the highest public office holder in Dublin city, could attain their position - but it would be a lot harder for them to climb up the ladders in the labour unions and trades, where the 'jobs', the 'work', was all passed about through connections.

So in other words, the notion is embedded in Irish culture, that ability to perform tasks in a job situation, has a lot less to do with abilities, than other factors.

Brian O' Hanlon said...

And that followed through into the Celtic Tiger - and follows through into the statistician approach to employment at Forfas in 2013. We had bums on seats, sure, but when it came to getting any work done (where it required having skills necessary and adding value), we often imported labour with those skills. So then, we had a doubling up of labour expenditure, to keep our own 'in work', and then someone else also, to actually do the work. The emphasis should not be on looking at this statistic about who's in work, and who's not - but it should be about looking at the population, and asking what work needs to be done, or could be done, and who do we have/not have, who can do the same.

What happens in Ireland when we witness something that is known as a 'recovery', is that it is not a recovery at all. It's just a panic, to fill seats - and then import additional labour, to actually do what the people filling the seats do seem to be able to do. And this is why enterprise and economic health never lasts very long in Ireland - because it takes such an incredible feat of trickery, to actually move all of those half million citizens from the minus column, to the plus column, that it drives enterprise into total inefficiency, and so the whole thing collapses again.

Skills are like a perishable product - and need to be managed all the ways across the cycle - through upswings and downswings (and the point I am making, is we are as negligent of developing any skills as much in the upturns, as we are in the downturns). And that is the basic problem. And it all stems from a fascination, with 'in work', and 'out of work', and the entire socio-economic history, with all of the brickie's labourers and so forth in Ireland.

Brian O' Hanlon said...

@ Constantin,

As I understand, Stephen Kinsella at University of Limerick is undertaking a bit of high level research into this area in the next few years.

Not to labour my point too much, but what I think is that we might in Ireland use sources of understanding, such as Peter M. Senge, and his work, The Fifth Discipline, as a good lens, aimed at understanding how 'interventions' on the part of our state employment, research and development agencies - may be contributing to problems and compounding problems for youth employment - while at the same time trying to fix those same problems.

However, this is precisely the approach to research into this whole area, that I am almost sure, will not be undertaken - although, there may be a lot of good people wrapped up in Ireland, in trying to look at the problem from various ways, and through various means.

In fact, we have probably spent a small fortune in Ireland over the years, in trying to solve the problem, or assist a solution, for what real benefit? ? ?

Miken said...

Of course the agency in question is Forfas, not FAS as the blog reports.

TrueEconomics said...

Yes. You are of course correct and the post has been updated to reflect. Many thanks for spotting the error.

Brian O' Hanlon said...

An oldie, but a goodie. Your country, your money, which Professor Whelan wrote/blogged about back in autumn 2010.