23/9/2013: Sunday Times 08/09/2013: Irish Demographic Dividend Reversal

This is an unedited version of my Sunday Times article from September 8, 2013.


Back in the heady days of the Celtic Tiger, Irish economics commentariat and banks experts were extolling the virtues of Ireland's 'demographic dividend'.  A confluence of high birth rates, declining mortality and robust inward migration was propelling Ireland toward perpetually rising population counts. With these, the argument went, Ireland faced the ever-lasting expansion of domestic demand and labour supply.

Less than a decade later, the dividend has all but vanished in the maelstrom of rampant emigration. More ominously, as the latest trends suggest emigration is now reaching well beyond the traditionally at-risk sub-categories of the recent newcomers to Ireland and the long-term unemployed. Instead, outflows of professionals and middle-class families are now also on the rise.


Cutting across this nirvana of consensus permeating the Irish society around 2004-2006, few dared to suggest that something major was amiss in the aforementioned theory. Yet, the risks to Ireland's 'demographic dividend' were visible even at the time of the boom. At the peak of the Celtic Tiger and since the beginning of the Great Recession, I wrote about them in Irish media, including in these very pages. The first threat to our long-term population trends even in 2004-2006 period related to the risk of a structural economic slowdown. The second one came from the demographic ageing of the core European states and the resulting inevitable rise in wages premium for younger workers in these economies.

With the onset of the Great Recession, increased job markets uncertainty and declining disposable incomes have acted to boost Ireland’s birth rates, seemingly supporting the argument of some analysts that the demographic dividend was still alive and well then. In 1995-2007, there were 56,423 annual births on average in the Republic. In 2008-2009 average annual number of births stood at 74,183. Changes in the incentives for having children offered by the Great Recession were clearly the factor pushing fertility up. Alas, the latest data covering the twelve months through April 2013 shows that this process is now exhausted with 2013 births counts down 8.7 percent on 2010 peak.

Offsetting the initial rise in births, the Great Recession pushed Ireland back into becoming a net emigration nation once again, for the first time since 1995. Data published by the CSO last week shows that in 12 months through April 2013, total of 89,000 people have left the country. This is the highest number since the records started in 1987. There was a small increase in immigration driven primarily by importation of specialist foreign workers by the booming ICT and IFSC sectors, plus the return of students working on 1 and 2-year visas abroad. Despite this, 2013 marks the fourth consecutive year of net emigration.

Current rates of emigration are running ahead of the 1987-1995 period average. Back then, net emigration from Ireland averaged 14,811 per annum. Over the last four years, the average net outflow of people from this country stood at 30,600 annually.

The twin squeeze of declining birth rates and strong net emigration has resulted in 2013 posting the weakest overall population changes in 23 years. In 12 months through April 2013, Irish population grew estimated 7,700 - one seventh of the annual average for the 1991-2007 period. This brings us dangerously close to a rerun of the 1980s-styled demographic collapse when Irish population actually declined in three years through 1990.

Truth be told, we are probably caught in this 'back to the future' demographic warp already.

Our official statistics show inflow of 29,400 immigrants, excluding the returning Irish nationals and the immigrants from the Accession states, in the 12 months through April 2013. Majority of these are likely to be foreign workers brought into the country temporarily by the MNCs. Moreover, the current CSO estimates are based on PPS numbers, foreign visas issuance, as well as household surveys. These methods are potentially underestimating the numbers of those Irish nationals who have left the country, but still have close family remaining here. Last, but not least, our data is probably also underestimating outflows of the EU12 Accession states’ nationals.

Controlling for the above factors, it is highly likely that we are already experiencing a reversal of the ‘demographic dividend’ and the onset of the zero-to-negative population growth in Ireland since 2011. This has meant that our population today is some 436,000 below where it would have been if the trend established between 2000 and 2007 were to continue.


Ireland's emigration flows and population changes by age and nationality are retracing the structural collapse of our economy: the story of our paralysed and polarised society burdened by debts, taxes, unemployment, lack of opportunities for career advancement and fear for the future.

From 2010 through 2013, the numbers of Irish nationals opting to leave the country net of those returning from abroad have been rising steadily. The net outflow of Irish nationals more than tripled between 2010 and 2013. If between 2006 and 2008, some 32,100 more Irish people returned home than left Ireland, over the subsequent 5 years, 90,700 more Irish people emigrated from the island than moved here.

In addition to the above, there are some new undertones that are emerging in the data over the last two years.

Official data on population breakdown by age groups shows that the bulk of population declines over the crisis in Ireland took place in the 15-29 year olds cohorts. However, since 2011, the 30-39 year olds cohort is also posting declining numbers. These age-related trends are now pushing us toward twin age dependency scenario where the numbers of old age-dependent residents and young age-dependents peak at the same time. Top productivity cohorts - ages 34-54 - grew by 124,000 since 2007, while old and young age dependents cohorts are up 203,600 over the same period of time. Working age cohorts (20 years of age through 64 years of age) accounted for 62.4 percent of Irish population in 2007. This year the ratio is 59.7 percent.

Compared against the age distribution of the unemployment, the latest trends suggest that jobs losses are no longer the sole drivers of emigration. Instead, it appears that emigration is increasingly afflicting those groups of population that are generally more secure in their jobs. The potential reasons for this are household debt overhang and lack of promotional opportunities open to the younger workers here.

While the numbers of emigrants between 15 and 24 years of age remained basically unchanged over 2011-2013 period, the numbers of emigrants between 25 and 44 years of age rose by a third. With this, there was a corresponding rise in families relocating abroad.

With banks starting to move more aggressively against distressed borrowers, these sub-trends are likely to strengthen over time.

Economic and social losses arising from debt crisis are also likely to increase as migrants due to debt and/or career considerations are more likely to carry with them above average skills, productivity and earning potential. In addition, these migrants are less likely to return to Ireland, especially if the debt they leave behind remains on the record against their names.


The impact of the current wave of emigration on our society and economy is likely to be more long lasting than that of the previous emigration waves. This conjecture is supported by a number of considerations.

Today’s emigrants are conditioned by their education, past employment experiences and social values systems to accept the mobile nature of their future careers. In other words, having left Ireland they are unlikely to look back at their homeland as a natural home. Increasingly, Irish emigrants are setting their sights on geographies that are more remote from Ireland than the UK and continental Europe. This puts more stress on their ties to Ireland. The latest data showing that emigrants to countries like Australia, New Zealand and Canada tend to show lower returns in recent years. In addition, debt legacy will hold many of them back from returning to Ireland in the future. Age-related considerations with further reinforce this effect, with many emigrants in their mid-30s and 40s today facing a prospect of never again being able to secure a mortgage in Ireland were they to attempt a comeback. Lastly, a major factor in today’s emigration from Ireland is that it involves greater proportion of emigrants who enter their host destinations legally, thus increasing their chances at future naturalisation.

Overall, CSO data confirms the above observations, as fewer and fewer Irish nationals are today returning back home.


Far from being a solution to our economic woes or a temporary safety valve for the economy saddled with high levels of unemployment, current wave of emigration from Ireland is undermining the prospects of economic recovery here. More crucially, by removing more politically and socially disenchanted and activist younger people and families, the emigration is acting to mute the voices of dissent here. With them, the raison d’etre for the robust political, social and economic changes is slipping away too.

BOX-OUT:

Markit-Investec Purchasing Manager Indices for Irish Manufacturing and Services have both posted significant gains in August, compared to July. August PMI for Manufacturing came in at 52.0, showing the fastest pace of economic activity growth for the sector since November 2012. Meanwhile, Services PMI reading of 61.6 was the highest since February 2007. Both indices are subject to significant distortions from the multinational companies based here. However, Services PMI is subject to more severe skews due to the tax arbitrage activities by companies operating in international financial services, ICT services and auxiliary business support services. Nonetheless, caveats aside, the latest data strongly suggests that Ireland has moved out of the triple-dip recession in Q3 2013 and will post growth in GDP for the three months through September. Aside from this, however, the PMIs continue to signal relative weakness in the domestic sectors compared to exports and employment growth signals have weakened in both sectors of the economy. Finally, additional good news were signaled by the improved profit margins in Services, now third month running and marking the first sustained upward momentum in profits in five years. This, however, was not the case in Manufacturing, where input costs rose against basically unchanged output prices.

5/9/2013: OECD Migration report 2013: Ireland's blues

Last week, OECD published its International Migration Outlook 2013. I wrote about this in the box-out section of my Sunday Times column which is available here in an unedited version: http://trueeconomics.blogspot.ie/2013/09/592013-sunday-times-september-1.html

Couple of charts to illustrate the actual findings from the OECD:

These show pretty severe adverse impact of immigration on Irish exchequer finances, driven primarily by (in descending order of importance):

1. The extent of the current crisis
2. The impact of immigration flows composition on transmitting the shocks of unemployment to exchequer balance sheet (exceptionally rapid replacement of previously jobs-linked immigration inflows prior to 2004 with post-2004 opportunistic immigration from the EU Accession states, primarily going to short-term jobs in construction and domestic services sectors)
3. The impact of the Government policies since 2000-2001 that raised significantly spending on social welfare

The problem, of course, is that the latest Government policies, acting to limit access to Irish labour market for non-EU nationals continues to reinforce the second point above. We are increasingly trading on the assumption that Accession states' nationals regardless of their skills can act as a substitute for highly skilled and perfectly selected into jobs candidates from the rest of the world. Not exactly a smart policy, folks…

In 2006 I wrote about this effect on selection bias in Irish immigration policies post-2004 for the Romanian Journal of European Studies: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1100952 Seems like my warnings came to the front in the OECD data.

Economics 15/08/2009: Migrants in Ireland - a recent study

Here is a quote from the recently published paper on immigration to Ireland, Alan Barrett (ESRI) "EU Enlargement and Ireland’s Labour Market" IZA DP No. 4260, June 2009 that actually getting me going, folks (emphasis is mine):

"In order to get a sense of the educational profile of EU10 immigrants, we need to
draw on earlier research. Barrett and Duffy (2008) show the education levels of EU10
immigrants, along with those of other immigrants based on data from 2005. In Table
5, we present their figures.

The first point to be taken from the table is that Ireland’s immigrants, in general, are relatively highly educated. We know from Barrett et al (2006) that about 30 percent of the Irish labour force have third level qualifications. Hence, the proportion of immigrant with third level qualifications, at over 40 percent, points to a high-skilled inflow.

As regards immigrants from the EU10, although they have the lowest proportion of highly educated across the immigrants groups, they still compare favourably with the domestic labour force in terms of skill levels."

Now, there are several things going on in this statement. Here is the table Alan actually refers to:
Obviously, disregard the USA part - there are only 28 observations in the entire sample of American respondents in 2005 data set (couldn't find any Americans, folks?). But the rest is pretty much in line with what we do know... And here are the issues:

• 6.4% of the EU10 migrants report only a primary level or less - the highest number for all migrants. For all Irish residents, this figure was around 14% in 2008 and it was 16% in 2005. The fact that the EU10 citizens come from the countries with compulsory primary and secondary education helps, and the quality of their primary and secondary education should be pretty comparable to that of their Western European, American and Irish counterparts.
• 9.3% have lower secondary education and 37.8% have upper secondary education. Seems like EU10 workers are more educated. They are not - these percentages refer to the highest level of education achieved. So 53.5% of the EU10 residents in Ireland have attained, as their highest level of education only 'at or below higher secondary level'. This is more than any of the other migrant groups: 47.3% for UK, 25.7% EU13, 33.4% for Other and 39.2% for the entire migrant population. In other words, more EU10 migrants stopped their education at higher secondary level than any other group of migrants. For the overall Irish labour force this number was 65% - meaning only 35% of Irish resident labour force has moved on to reach higher educational levels.
• Of course, any education below a full third level degree means little in terms of skills - Alan should know this. For anyone without a third level degree, their skills are determined largely by the length of tenure and work-related training. I wrote about huge returns to tenure in Ireland, relative to education and this surely explains much of wages differentials for migrants. It is slightly surprising seeing a good economist, such as Alan, occasionally mixing up the two concepts. Here, of course, EU10 migrants lose, for they are (a) relative new comers (have not enough tenure to acquire requisite skills); and (b) might have greater language barriers to absorbing on the job training as efficiently as their UK, US and Irish counterparts. One must also add that Irish companies are not really as well advanced in formal and structured on-the-job training and that leaving work training to FAS (as many do) is a veritable disaster. All of this likely reduces actual skills of the lower (below college degree level) educated migrants.
  
• Now, consider those who actually finish their third level degree or progressed above it. EU10 = 19.2%, Irish labour force average = 16% (recall we are comparing 2005 figures here). A small differential, which is likely to be statistically significant only if the data is measured accurately (it is not - see below). But when it comes to comparing EU10 nationals to other migrants - well, they are not in the running, are they?

So Alan's conclusion that EU10 migrants are relatively well educated only holds water when compared against the native workers, but not against other migrants, and if we are to assume that data for the EU10 migrants is free of self-reporting biases and errors, and if their degrees are actually fully comparable to those in the rest of the world.

Here is a different look at the same data (augmented with the latest CSO stats):There are more fundamental difficulties in making these comparisons that really are not Alan's fault, but do distort analysis.

One simply cannot bunch those EU10 migrants who arrived before the Accession 2004 (many) and those who arrived after (even more). In econo-speak, there are cohort effects.

These cohort effects distort 2004-2005 data, because in those years, majority of EU10 citizens residing in Ireland were most likely the same residents who lived here before 2004. Few years back I published a paper on the topic and showed some evidence that the pre-2004 group - selected under meritocratic migration policies - was indeed of a better quality than those that followed them post-2004. Not surprisingly, given that back pre-2004 they had to prove that they can compete against Americans, Europeans, Asians and the rest. Post-2004, this requirement was removed - the EU10 states were simply encouraged by this Government to displace workers from elsewhere. Of course, such displacement took place in the sectors where skills are less important than brawn - construction, retail, hospitality. Hence, not surprisingly, many of post-2004 workers were elected (and elected themselves) into lower paying domestic economy jobs, for:
(a) the path of least resistance made them move into jobs available to them, and
(b) they actually might have had difficulty proving to productivity-focused MNCs and a handful of externally trading domestic firms that they have better skills than, say, Indian software engineers, American finance specialists and so on.

Third problem is in the data itself. Virtually every taxi driver in NY is a self-reported 'medical doctor', 'dentist', 'pharmacist', 'physics professor', 'engineer' or a 'lawyer'. And yet none work in their fields, despite the US operating an extremely meritocratic system of qualification examinations to confirm medical degrees, for example, or to pass your bar exams, has comprehensive degree recognition culture and requires no specific certification for many fields. This is the issue with self-reported data when it comes to educational attainment questions - it is often of extremely poor quality.

Workers from the UK or US or EU13 might have fewer reasons to embellish their qualifications - they do not perceive this labour market to be discriminatory toward them. And, if you hold a degree from an internationally ranked university, you have nothing to prove to anyone. Those from the countries identified by their compatriots or Irish media or trade unions as being at risk of discrimination will have an incentive to gold-plate their qualifications. And if the university from which you obtained your degree does not rank in top 100-200 in the world, well - you just might add that extra claim to your qualifications, to strengthen your CV. Not all will take such steps, but some (how many?) will.

These, in my view, are very interesting areas for inquiry. I certainly wish Alan would have explored at least some of them. And I certainly hope he will update his data sources, for 2005, hmmm - that is ancient history by today's norms.