05/01/2011: PMIs and employment trends - December 2010

This is the last post in the series of three covering PMIs. The first two covered two sectors of the economy: Manufacturing and Services. As before, the data was released by the NCB Stockbrokers.

As I mentioned in the first post, PMIs serve important function - they act as close-lead indicators of economic activity ('close' referring to short lags between PMIs and economic performance). One of the most pressing issues in Irish economy today is unemployment and PMIs provide employment outlook that signals (albeit imperfectly) where we are heading in terms of jobs creation. Here are the two series for PMIs

and the same for employment:
So while Manufacturing is signaling weak growth across both output and employment, Services are showing neither:
Weighted (by economy weights) average of the two points in the chart above places December squarely into the Recession Area along the axis that barely enters Optimal Growth Area. It is worth noting that longer-term trends (and these are strong with 0.847 RSq for Services and even stronger 0.892 for Manufacturing) do not support Jobless Recovery. In contrast with historical experience, this is exactly where we are heading in Q1-Q2 2011 per chart above.

Economics 02/06/2010: Live Register - no longer flatlining

Liver Register numbers are out today, erasing much of the optimism that might have been building up about unemployment figures over the last couple of months. Here are the updated charts:
Unemployment rate is now rising again, reaching 13.7% after staying flat for the last four months at 13.4%. My forecast in January was that we will hit 13.5% in May. I was wrong. Well, not as wrong as some of our 'official' forecasters who were saying that we are turning the corner on unemployment...

Let's put today's news into perspective:
Notice 'missing' bubbles before May? That is because we had no growth in LR figures (they were actually shrinking) in February-April. Since the beginning of the year, mom, LR increased by 5,800 in January, fell by 2,300 in February, rose by 600 in March and contracted by 500 in April. With May increase of 6,600, we now have a net addition to the LR over the first 5 months of the year of 10,200. The Exchequer cost of these will be around €325 million per annum. In fact it will be probably higher as contractions in employment most likely have taken place in higher value added sectors, given that construction sector has virtually no jobs left to lose.

Taking a slower snapshot of the LR:
You can clearly see an uptick in the series in May. Given how relatively 'sticky' (trend-driven) LR is, this suggests that we might be heading for a new acceleration.

Next consider average weekly series. These are not seasonally adjusted:
However, taking seasonally adjusted data and extracting monthly series shows that we are firmly above the 'stabilization' line of zero change in the LR mom:
So here you have it - labour markets beg to differ from the Government's official line that 'all indicators point to a recovery'...

Public Sector's Missing 'Pains'

Charts below are self-illustrative:

• Public Sector Employment is up,

• Public Sector Wages are up,

• Public sector wages dispersion is extremely low across all categories, so Unions' claim that in some sectors wages are too low simply does not add up (per above and below)

• Cost Savings promised in July 2008, September 2008, October 2008, November 2008, December 2008, January 2009, February 2009, March 2009 and that will be promised comes next week's Mini-Budget are nowhere to be seen.

A lesson to be learned by Brian^2+Mary: you can announce vacuous plans but we'll catch you.

A lesson to be learned by voters: they (Brian, Brian & Mary) don't give a damn if we know or not.

Irish Boardrooms in Denial

This is an unedited version of the article published in Business&Finance Magazine, February 26, 2009, pages 30-31

Almost a year ago, I warned in this column that Irish companies are going to face a tough recession, with rising bad debts, tighter payments collections and accelerating rate of insolvencies. A recession that is likely to last through 2009 and a good half of 2010. Figures for 2008 show us on track to fulfil these predictions with more than doubling of the number of corporate insolvencies in one year. By all possible indications, 2009 is going to be even tougher than the already abysmal 2008. And yet, when it comes to a realistic assessment of business conditions there is a strange sense of denial of reality taking hold in Irish boardrooms.

First consider recent evidence. Two weeks ago, CSO recorded the first drop in industrial output in Ireland since 1982. A combination of collapsed construction sector activity, decimated domestic consumer spending and ever-shrinking global demand, exacerbated by the overvalued Euro all have contributed to this trend. Even more significantly, these forces’ impact on Irish producers, exporters and service providers is getting stronger by the day.

Exporters under pressure
2008 slowdown in output was primarily due to traditional sectors of the economy – down 4.7% in y-o-y terms, with multinational companies expanding their production by an anaemic 1.7%. There is little hope that this latter trend will not continue through 2009 and into a good part of 2010. More ominously, December figures show broadly based collapse in industrial activity with output contracting by more than 10% m-o-m in both multinational sector and amongst domestic companies. 26 out of 29 broader industry categories recorded contractions in output. Figure below highlights this, while removing some of the seasonal volatility.
Source: CSO

This is broadly in line with international experience. Last week figures showed that in 2008 Europe posted its biggest trade deficit in 10 years – a whooping €32.1bn. This marked a deterioration in the trade balance to the tune of €48bn in y-o-y terms. According to the majority of the analysts, coming months will see severe recessionary pressures for eurozone exporters. Irish exports are particularly vulnerable, given the falling consumer demand and business investment activity in the US and UK, as well as in the emerging countries. Exports to the UK, the main destination for the region’s products, dropped 3 percent in the 11 months through November 2008. Exports to the US, the second-biggest buyer of euro area goods, fell 5 percent. In the case of Ireland, the two countries account for more than 36% of the goods exports flow by value and some 50% of all Irish trade is linked to either the Dollar or Pound Sterling.

The end result – our core industrial exports are facing a decline, as illustrated in the figure below, precisely at the time of already collapsed domestic consumption. Our services exports are also facing decline with financial services and tourism struggling to stay afloat, while broader business services exports are feeling the same pressures of currency overvaluation and high cost of credit as our goods trade.Source: CSO

The expectations are that the 2008 growth sectors – ICT and pharma – might be also hard hit by a slowdown in global demand this year. In particular, ICT is sensitive to households and business investment demand. Lack of new investment in plant and equipment, software and operating systems in the US and across Europe is taking its toll on the likes of Dell, Intel and smaller hardware and software suppliers. By all estimates, this sector is not going to see a significant recovery until the earliest second half of 2009. Dell alone accounts for some 6.5% of Irish exports.

At the same time, pharma sector is likely to face mounting cost pressures in the US, a significant decline in demand for higher-end drugs from the emerging economies, plus a stronger generics competition. A recent study by the International Pharmaceutical Policy Council has shown that traditional pharma and bio-pharma sectors are facing significant cuts in research spending and employment, with recession undercutting public and private spending on universities-affiliated research. In the mean time, last week, Israel-based Teva Pharmaceutical Industries Ltd., the world's largest maker of generic drugs, said it expects the deepening global recession to spur demand for generics – bad news for the likes of Big Pharma that dominate Ireland’s exports statistics. In other words, even the so-called ‘recession-proof’ pharma companies are starting to feel the heat.

Yet to face the music
Which brings us back to the corporate boardrooms perceptions of the near term future. Last week’s InterTradeIreland Quarterly Business Monitor sheds some light here.

A comprehensive survey of some 1,000 companies north and south of the border has revealed that businesses are more pragmatic in their assessment of the past than they are about the future. In other words, Irish companies are feeling the pain, but are potentially deluding themselves into believing that the first half of 2009 will turn out to be economically stronger than the consensus forecast predicts.

In terms of the current conditions, roughly four out of five businesses indicated that they have experienced an adverse impact on trading conditions in recent months. This is hardly surprising, given that the biggest problems reported by business leaders were impacting their core parameters: tighter cash flow (68%) and decline in demand (66%). Some 87% of businesses noted a fall-off in consumer spending. 61% of the Republic of Ireland businesses saw a fall in turnover as opposed to 44% in the North.

Nonetheless, when asked which policies the Government can undertake to help business,
• 27% cited the need for improving access to borrowing (most likely indicative of the severe pressures on debt-laden businesses to raise new credit and roll over maturing short-term debt),
• 9% called for reduced levels of VAT and 7% for reduced taxation,
• 7% named assistance for SMEs, and 6% identified financial assistance for distressed companies.
The low numbers supporting consumer confidence improving tax reductions measures suggests that majority of businesses are not perceiving the current downturn to be demand-driven. Instead, there seem to be a much stronger conviction that the recession is a function of the credit cycle. Yet, 61% of business in the South (as opposed to 44% of those in the North) reported declining turnover.

Do the companies underestimate the extent of the collapse in consumer confidence at home, demand for exports abroad and the extent of their exposure to debt markets? Judging by the main policy priorities listed above, the answer is yes. The same answer is supported by the fact that few companies so far have taken significant cost-cutting measures. Only 30% of the Republic of Ireland companies (19% in the North) have reduced their workforce to the end of 2008. This is reflective of the fact that just 18% of businesses expected the downturn to have a severe adverse impact on their business in the next 12 months. Majority (63%) still think that this recession will be a moderate and short-lasting one.

And this is despite the fact that forecasters virtually unanimously predict 2009 to be worse than 2008 when it comes to trading conditions. For example, McKinsey Global Economic Conditions Survey last month has shown that 71% of global businesses expected general conditions to worsen in Q1 2009.

Chart below shows that Irish business leaders pessimism about the future has increased only marginally between the end of 2007 and the end of last year, despite the rapid deterioration in Irish economic conditions.

Potential Impact of Economic Downturn, 12 months forward
Source: InterTradeIreland, 2009

Optimism amongst businesses, although having abated in 2008, remains relatively high. Only 39% of all Irish businesses anticipate a decrease in turnover in Q1 2009 as opposed to 52% of global businesses in McKinsey survey. Similarly, for profitability – only 35% of Irish businesses expect a decline in profitability in Q1 2009, against 67% for the global sample.

Thus, only 14% of businesses across the island (18% in the Republic of Ireland) expected more layoffs and redundancies in Q1 2009. This is well below 29% of the global sample firms that were planning layoffs for this quarter.

In short, consistent with the findings on employment, turnover and profitability, the Intertrade Ireland results suggest that Irish businesses, both sides of the border, expect a mild recession to last no longer than 6-8 months. At the same time, global business leaders expect “a battered but resilient economy …[that] implies a recession of 18 months or so”, much in tune with the forecasts by the EU, IMF and the OECD. One side of the sea is clearly foolin itself here…

Box-out: IFSC Liabilities

A research note from the Davy Stockbrokers last week attempted to clarify the issue of the banking sector liabilities in Ireland. According to the Bank for International Settlements data, in Q3 2008 banking liabilities of the Irish-owned banks totaled €575bn, or 309% of GDP – the third-highest in the euro area. The Irish government has guaranteed €440bn (or 237% of GDP) of this. At the same time, the liabilities of all financial institutions resident in Ireland were €1,424bn, or 839% of GDP. But €849bn of that “…is not in any way a liability of the Irish government,” says the Davy note.

Well, sort of. €849bn might not be a liability under the Government guarantee scheme (although it remains to be seen how the foreign banks deposits and loans by and to Irish residents will be treated in the case of default) but from the economy’s point of view – some share of the €849bn debt represents a potential risk exposure for the state.

Here is how. Recall the good old days when our country leaders trotted the globe telling everyone that IFSC is a flagship of our knowledge-based modern economy? How come we now conveniently shrug off any liability inherent in having IFSC on our soil? IFSC is an asset to Ireland: a major contributor to the exchequer, a large employer of Irish workers and a significant purchaser of associated business services, including the services of the stockbrokers.

Now, imagine if excess debt exposure of IFSC-based companies was to drive them out of business. Where would that leave the State, not to mention the economy? A rough guess – ca €700mln in Exchequer revenue, plus the returns from employment of ca 20,000 people, plus commercial rents returns and VAT returns due to business activity. The total state take from the IFSC can easily exceed €1.5bn. If the risk of losing this dough is not a liability for the Irish state, what is?

Davy is correct in the strict sense of listing the actual figures. However, ignoring the IFSC-held liabilities creates an illusion that somehow Ireland Inc is independent of what is happening in the Docklands and beyond. It is not. Just as in good times we reaped the benefits of the IFSc, we must, at the time of challenges acknowledge its liabilities as being at least in part our own.

Some housekeeping: a handful of updates

A cleaning up of some of my emails provided for a digest of interesting updates on the topics already covered in other posts. Here is an attempt to combine these...

To the QNHS (here) and Live Register data (here):

Per Davy note: "The worst affected areas [of unemployment] are building and those service sectors related to construction and the global financial crisis. Construction employment slid 7.6% quarter-on-quarter, followed by hotels and restaurants (- 3.2%), retail/wholesale (-2.3%) and financial/business services (-1.9%). No pain-sharing is evident in the data: private sector employment dropped 97,400 over the last 12 months while public employment increased by 10,000."

Last night I was a guest on a Late Debate (RTE Radio 1) alongside a SIPTU rep who was clearly traveling in some parallel reality claiming that:

• public sector took all the pain of adjustment to-date;
• those on higher incomes took no pain to date; and
• layoffs in public sector would be equivalent to layoffs in private sector.

Per point 1 - Davy note says it all, but an update on Exchequer results below also highlights the same.
Per point 2 - October Budget 2009 and its update, November Finance Bill II, both imposed progressively increasing Income Tax Levy on higher earners.
Per point 3 - two facts: (1) wage to value added ratio in Public Sectors (average) is ca 30% lower than in the Private Sector and some 1/3 lower than in the Financial and Business Services, and (2) wage to value added ratio in majority of public sector categories is close to or less than 1, so cutting 1 person out of the public sector would cost economy nothing (for ratio of 1) or would save economy some resources (for ratio is <1).
One caveat - of course, within Public Sector there are people who are highly contributive to the economy. For example: both IDA & Enterprise Ireland are aggregated into the above averages. These agencies have been significant contributors to the economic welfare in this country. Similarly, within each category, there is little understanding as to the variance of wage/ productivity ratios. E.g, do higher salaries in our flagship Universities relative to the second-tier third level institutions correspond to the productivity differentials? Knowing internal operations of Trinity, not exactly, but fairly closely. Thus, raising taxes in a 'proportionate' way as the Unions insist will hurt disproportionately more those who earn higher wages because of their higher productivity, even in the public sector.
Per Unions' 'Alternative Universe' - I got a general sense that our Unionists simply do not understand that in all instances, public sector workers depend for their wages on private sector earnings. Somehow, the Bearded Men of SIPTU/ICTU/CPSU/TGWU and the rest of the alphabet soup do not get the concept of who pays for what in this economy.

Per Exchequer Returns, February 2009 (here): there is significant evidence of deep wage cuts in private sector as income tax revenue continued to slide in January and February, despite the introduction of the income tax levy. In addition, current (non-capital) spending was up 3% y-o-y in February 2009. 2009 current spending is now on track to reach over 38% of Irish GNP - matching the record high achieved in 1983. Pure waste!

Financials and Other Stocks: as Davy puts it in a recent note: at the end of February 2009, the entire Irish Financial Sector accounted for only 3.5% of the Irish Stock Exchange capitalization as compared to 37.5% a year ago. This is diversification through attrition. The ISEQ dropped 10.3% in February - its sixth successive monthly decline. This was "the worst February performance in its 25-year history. It underperformed the FTSE Eurofirst 300 index, which also experienced its worst February performance, by 0.6%." A picture is worth a 1,000 words (all courtesy of Davy):
The last chart of course shows that Ireland is a absolute under-performer in its peer group. Davy do not analyse earnings in this context, but the above valuations are hardly making the shares cheaper. Earnings declines are now precipitous for all companies and my suspicion is that P/E ratios are falling. In other words, there is a question to be asked if there are any bargains out there given the earnings projections?Lastly, Davy provide a good snapshot of the bond markets dynamics in the chart reproduced above. Spot the odd-one-out? Note the timing of our departure to the Club Med of Near-Insolvent States - bang on coincident with Mr Lenihan's Budget... This should be a warning to everyone who is desperate for this Government to do something about the crisis: doing 'something', as opposed to doing the right thing, will make matters worse. Clearly, the markets are not seeing higher taxes and a lack of spending cuts (Budget 2009) as 'doing the right thing'.

Mansergh Calls for 'Celtic Tiger' Fat Cubs to pay their share in the downturn: Mr Mansergh - Bertie's pet in the Dail and a Junior Minister in the Cabinet - called yesterday for the tax measures in the mini-budget to focus on making sure that those who benefited most during the Celtic Tiger era pay more in taxes. Great idea from the Grand Weasel of Irish Politics. How about we start with Mr Mansergh himself - a person whose ministerial salary is out of touch with reality, and whose pension benefits are so lavish, that some bankers would envy the returns on so few years of such a non-demanding work as that of a Junior Minister for State with responsibility for the Arts. Mansergh serves in the cabinet which, with exception of 3-5 Ministers, is remarkable for its inability to do its job at a basic level. Yet the cabinet is being paid more than its counterparts in the US, UK, EU15 or indeed anywhere else in the developed/ democratic world. So, be my guest, Mr Mansergh - pony up, say 50% of your own income - you and your colleagues and their senior public service underlings are the Fat Celtic Tiger Cubs.

Trade and Unemployment Stats

Trade meltdown
Our latest trade situation is dire (here).

Although “Seasonally adjusted imports fell by 11% in December relative to November
2008 and exports fell by 4%,” in monthly terms things were much worse: “Relative to October 2008, imports fell by 1% in November 2008 while exports fell by 4%.”

So the overall dynamic is that exports are now collapsing at a faster rate than the deterioration in imports.

The reason is simple – imports started to suffer on the back of a much deeper contraction in the economy and this process was exacerbated by the Government-induced pillaging of personal disposable incomes since July 2008 announcement concerning the upcoming Budget 2009 - the first time Messrs Cowen and Lenihan have dipped deeper into our pockets. Exports lagged this process because our main buyers were more resilient to the global economic downturn than we are, because their Governments largely were not so insane as to raise taxes amidst a recession, and because Ireland-based multinationals engaged in a massive exercise to rationalize their taxes – booking more transfer pricing (thus supporting both imports and exports) via Ireland Inc. The chart - taken from CSO's release - shows exactly this timing and trade balance dynamics...Evidence? “The January-November figures for 2008 when compared with those of 2007 show that: Exports decreased from €83,062m to €79,873m (-4%)” with
• Computer equipment exports decreased by 27% (exactly offsetting a 26% decrease in imports in this category, implying very aggressive transfer pricing by the likes of Dell and others),
• Organic chemicals by 10%,
• Vegetables and fruit by 42%,
• Industrial Machinery by 15% and Metalliferous ores by 21%.
• Chemical materials increased by 35%,
• Medical and pharmaceutical products by 12% (imports in this category were up 18%),
• Professional, scientific and controlling apparatus by 30% and
• Petroleum products by 41%.

There is little evidence in the aggregate numbers that Irish exporting companies are suffering from the Sterling devaluation: shipments of goods to Great Britain fell by 5%, while shipments to Switzerland decreased by 22%, the Netherlands by 16%, Germany by 10%, and the Philippines by 49%. Dollar devaluation is not biting either with shipments to the US up by 2%, although most of this is probably due to transfer pricing.

Despite stronger Euro, imports of goods from Great Britain decreased by 7%, China by 18%, the United States by 6%, Japan by 28%, South Korea by 39% and within the Eurozone – from France by 13%, and Germany by 15%. Goods imports from Denmark increased by 50%, the Netherlands by 6%, Poland by 65%, Russia by 73% and Finland by 33%.

Yieeeks!

Unemployment - the bust is getting bustier...
Per QNHS data, also released today (here):

Q4 2008 there were 86,900 or 4.1% fewer people working in Ireland – “the largest annual decrease in employment since the labour force survey was first undertaken in 1975. This compares with an annual decrease in employment of 1.2% in the previous quarter and growth of 3.2% in the year to the fourth quarter of 2007.” Desperate stuff…

The overall employment rate among persons aged 15-64 fell to 65.8% from 69.0% in Q4 2007 with current employment rate running at the level of H1 2004, effectively implying that the last 4.5 years worth of growth have gone up in smoke within a span of less than 1 year.

There were 170,600 persons unemployed in Q4 2008 - an increase of 69,600 (+68.9%) in the year. The total number of persons in the labour force in the fourth quarter of 2008 was 2,222,700 – a decrease of 17,200 or 0.8% over the year. “This is the first annual decline in the size of the labour force since 1989,” says CSO. It is safe to assume that these figures do not include an outflow of foreign and domestic workers from Ireland. Overall, jobs destruction is thus much deeper than the QNHS figures imply.

All age groups showed an increase in unemployment with those aged 25-44 showing the largest increase (+33,500). The latter effect is, of course, due to the idiotic labour laws that imply that for any company it is virtually impossible to lay off older workers. This, in turn, leads to a situation where the productivity of individual workers becomes irrelevant to the decision to lay them off or to keep them on a payroll. The long-term unemployment rate was 1.8% compared to a rate of 1.2% in Q4 2007. The standardized unemployment rate was 7.7% in Q4 2008, up from 6.4% in Q3.

Conclusion:
In a normal democracy, the Government would probably fall on figures like these, but whichever way you spin the figures – Mary Coughlan being the Minister in charge of both Trade and Employment should find some final remnants of grace and tender her resignation.


As a side note, consider figure below:
Per CSO: “There were an estimated 476,100 non-Irish nationals aged 15 years and over in the State in the fourth quarter of 2008. Of these 349,300 were in the labour force, a decrease of 5,400 in the year to Q4 2008. An increase of 49,700 had been recorded in the year to Q4 2007. According to ILO criteria, 316,000 non-Irish nationals were in employment, a decrease of 18,700 over the year. A further 33,300 were unemployed, an increase of 13,300 in the year to Q4 2008. Nationals of the EU accession states showed a decline in employment of 16,800 and an increase in unemployment of 7,500 over the year. The unemployment rate for non-Irish nationals was 9.5% compared with an unemployment rate of 7.3% for Irish nationals.

In the fourth quarter of 2008 non-Irish nationals accounted for over 15% of all persons aged 15 and over in employment. Over 34% of workers in Hotels and restaurants, 18.8% in Other production industries and 16.7% in Wholesale and retail trade sectors were non-Irish nationals. The largest decreases in employment for non-Irish nationals occurred in the Construction (-10,100), Hotels and restaurants (-7,400) and Wholesale and retail trade (-5,100) sectors.” Now, detailed tables in the release show that in fact virtually no foreigners were employed in the public sector (ex health and education) per chart below.

Foreign nationals employment, 1,000s.So the total decline in foreing workers in mployment numbers of 86,900 was fully accounted, per CSO Table A1 as becoming either Unemployed (69,600), or out of the Labour Force (17,200), while 48,500 were Economically Inactive. Any idea how many actually left our shores?

Debt Mountain 'Ireland Inc' II

For those who missed yesterday's Irish Times article by Brian Lucey and myself - here is the link. Of course, the followers of this blog would know most of these facts already.

Another article - my quick analysis of the Exchequer figures for January - is in today's Irish Independent (here).

And I actually do mean we are in a soap-opera land when it comes to policy. In fact, in July, I wrote for an investment newsletter a piece that provided a metaphor for our public finances condition as of June 2008 - a metaphor of a Wile E. Coyote frozen over an abyss nanoseconds before a disaster. Memorably, I was informed that the metaphor was taking things too far... Hmmm... was it? Judge for yourselves:If you are still not feeling the wind whistling into your ears as Coyote gains speed, take a look at this...Two facts are apparent:
1) we are witnessing the steepest assent in the unemployment in years, with the speed of unemployment rise shown in the table below; and2) DofF forecast in January 2009 was for the economy to reach 9.2% unemployment this year. Just a month into 2009, we are already there in standardized unemployment terms. DofF 2010 target for social welfare spending is based on the projection that unemployment will reach 10.5% or a notch over 372,000 in today's labour force terms. 2009 Live Register average was assumed to be at 290,000 in the Budget. In other words, at the rate of jobs losses in January, we are less than 2 months away from blowing through 2010 assumption, never mind the 2009 estimate!

Whiiiishshsh! Goes Coyote...

2009 budgeting in October assumed unemployment at 7.3% 2009 (I wrote before about the abysmal quality of our boffins' forecasts here). The €2bn spending cuts were also based on this figure as a part of budgetary estimates. It is now crystal clear that DofF has grossly missed the estimate on social welfare and unemployment benefits. By how much? I will leave budgetary eggheads to do all the math, my guess is ca €2bn.

.... Splat!

But it can be more. Why? Well, last year an unknown, but potentially significant number of foreign workers have left Ireland. This undoubtedly kept Live Register somewhat lower. But as the best and most employable workers leave first - because they have better prospects of gaining a job elsewhere - adverse selection will most certainly see marginal and poor foreign workers remaining. These workers face much lower prospects of gaining a job elsewhere, so on the margin, Irish unemployment benefits are much more lucrative an incentive for them to stay here. In other words, if emigration was keeping Live Register below what it might have been in 2008, the same is unlikely to happen in 2009 and 2010.

Good luck to all who bought rental apartments in the outlying areas of Dublin and across the country. With Poles and others heading either for the airport or to the dole office, the rents are going to follow land values - into agricultural pricing territory...

P.S. Given that our banks spent 2008 busy converting development loans into investment loans by forcing developers to turn completed properties into rentals, what does this mean for our banks' impairment charges? BofI at €0.30 and AIB at €0.50 after the recapitalization?.. The answer is unpalatable, but I will leave the numbers as an exercise for Ireland's best banking sector analysts...

Government's Plan for Ireland: Exclusive... Part 5

Per earlier posts, italics are my


5. Work together to implement a reform agenda

(i) to implement an agenda for enterprise and competitiveness based on the Framework for Sustainable Economic Renewal: Building Ireland’s Smart Economy including:

• building on strengths in the Agriculture, Fisheries and Food sectors (back to De Valera's Dream, then?)
  
• developing the ideas economy with intensified R&D activity and greater commercialisation of the output of that research (more MIT Media Labs and E-voting machines?)
• supporting the manufacturing sector (How?)
• encouraging entrepreneurship and business start-ups (by raising taxes and taking more money out of families' pockets?)
• pursuing opportunities to expand the services sector, in particular international services (by doing what?)
• realising the long-term potential of the tourism sector (How? By setting a minimum wage that makes our labour uncompetitive? By hiking VAT rates and adding new taxes on tourism?)
• improving trade, investment and tourism links with new and fast-developing markets (more junkets to exotic destinations for the Cabinet?)
• pursuing opportunities in the Green Enterprise sector, including in the area of energy efficiency (aka we take your money and your light bulbs?)
  

(I have commented on this plan before. It is a road map to nowhere for a number of reasons outlined here and here. But what is truly egregious in all of this is that the ‘plan’ above comes after the promise of carrying out only evidence-based expenditure programmes, despite most of it being based on no evidence at all and parts of it having the preponderance of evidence against them.)

(ii) to develop a new approach to upskilling and reskilling those in employment and those outside the labour market; we will convene a Jobs and Skills Summit in March 2009 to devise innovative approaches to maintenance of employment, creation of new employment and early and active engagement with those losing their jobs; we will also seek to maximise eligible support from the European Globalisation Adjustment Fund for initiatives to support those who are made redundant

(Read: we'll get FAS to fly back to see NASA and beg the EU to give us some handouts to pay for their trips)

(iii) to ensure that sheltered sectors of the economy, including professional services, bear their full share of the burden of adjustment

(This Government cannot even force its own employees to take a cut, imagine them going after protected professions? But what they will do is tax. Tax anyone with a degree - for people who invested in their education tend to earn more. Tax anyone with skills - for people with skills tend to earn more. Tax anyone with experience - for... well - you get the wind.)

(iv) to implement the employment rights provisions in the Towards 2016 Transitional Agreement

(And raise wages and perks for the least productive in our economy?)

(v) to deliver measurable public service reform to improve the efficiency and quality of public services, based on the Government’s Statement on Transforming the Public Service published in 2008

(Since 2008, the Government sat on its hands, doing absolutely nothing about this. Will they change their mind? Not. The entire programme proposed by Mr Cowen today is a give-away to the public sector trade unions and politically-connected lobbies. Mark my words - there will be no change!)

(vi) to continue implementation of the Health Service Reform Programme, including utilising the Health Forum under Towards 2016

(After a gratuitous increase in pay for consultants in exchange for no new responsibilities or any work load increases, there hardly anyone in the country who believes in this drivel)

(vii) to finalise a comprehensive framework for future pension policy which responds to the challenges facing the Irish pensions system in the years ahead

(Read: mandatory pensions, claw back of tax benefits for pensions savings and vast transfers of pensions-linked wealth from the private sector. In other words - another tax!)

(viii) to ensure our approach to regulation, accountability and corporate governance delivers a sustainable society and economy

(Mr Cowen's speak for more red tape on ordinary businesses!)


6. Conclusion

The Government and Social Partners commit to work intensively over the immediate period ahead to develop specific measures to finalise and then implement a Pact based on this framework.

Ends

This 'plan' is a classic example of “How to Destroy a Country in Five Easy Steps” guide:
1) Raise taxes in a recession;
2) Yield on everything to the narrow interest groups;
3) Spend precious taxpayers cash on feel-good Government waste;
4) Pile on more regulation and delegate democracy to an unelected group of public sector lobbyists;
5) Keep rolling back your previous promises and commitments (i.e Mr Lenihan’s repeated promises that he will not raise taxes)

If this is Mr Cowen’s way, his philosophy, would the last person leaving this country turn of the lights, please!

Government's Plan for Ireland: Exclusive... Part 4

Continued, as earlier italics are my:

Part 3:


An Equitable Approach

The Government and Social Partners believe that support for these adjustments will be strengthened by measures which demonstrate that the burden is being shared equitably across society. This includes:

• the need to ensure that moderation in respect of executive remuneration is seen to contribute meaningfully to the adjustment required
• that those who benefited most from the economic boom should make a particular contribution to the adjustment required
  

(This is it? Given that wages in the public sector earn 40%+ premium on pay in comparable private sector occupations, who, Mr Cowen, has benefited most from the boom?)


Delivering the Fiscal Stabilisation Framework

The Government and Social Partners agree that a credible response to the fiscal situation requires a further adjustment at this stage of the order of €2 billion in 2009.

(But this is the same response Mr Lenihan announced in July. This means that either the Government finds no need to change its response to the crisis as it evolved since July, or that Brian-Brian-Mary are simply dumping more than 90% of the budget deficit for 2009 onto the shoulders of the private sector alone, with the unionized public sector carrying less than 10% of the burden. Is this their version of evidence-based equitable policy?)

In addition to this immediate adjustment required in 2009, the Government and Social Partners commit to working together under the Pact to support the further adjustments required to reduce the General Government Deficit below 3% over the remainder of the five year period.

(Can the authors of this document explain how on earth can this Partnership deliver on cuts of €4bn in 2010, €2bn in 2011, €1.75bn in 2012 and €1.25bn in 2013 – as envisioned by the DofF January 2009 forecast (see here http://trueeconomics.blogspot.com/2009/01/doff-instability-report.html) if the same Partnership is having such a hard time delivering a €2bn cut this year? Furthermore, observe that there is not a word about cutting excessively high public sector pay, freezing public sector wages or reforming public sector pensions and perks. None! This leaves the cuts to come solely from the service side.)

4. Short-term Stabilisation of the Economy

In order to maximise economic activity and employment in the short-term, the Government will:

• provide a fiscal stimulus in 2009 and 2010 by maintaining capital investment at a high level by both international and historical standards

(In other words, their emergency response is to continue with NDP investment planned well before the crisis hit. This is equivalent to doing nothing, Brians)

• re-prioritise this capital expenditure in 2009 and 2010 in order to support labour-intensive activities where possible
• bring forward further proposals to support enterprises during this extremely difficult period, recognising in particular the pressures arising from currency movements, and thereby support those in vulnerable employments
  

(What does this mean? There are no details on any of these measures and it is impossible to determine what exactly can the Government do to achieve these objectives)

• act quickly to improve competitiveness including increasing competition across the economy and reforming price regulation in areas such as energy

(ditto)

It is recognised that stabilising the financial and banking sector is essential to secure a banking system which is fit for purpose. Accordingly, Government action will seek to:

• assist those who get into difficulties with their mortgages; in early 2009 a new statutory Code of Practice in relation to mortgage arrears and home repossessions will be brought forward, and the mortgage interest scheme will be reviewed

(Again, no details on a crucially important promise.)

• maximise the flow of credit to the enterprise sector and ensure early introduction of a code of practice on business lending

(This is pure financial and economic nonsense. The Government cannot ‘maximize’ credit flows and short of requiring the banks to issue sub-prime equivalent high risk business loans at knock down rates, no ‘code of practice’ will help restaring credit flows to failing businesses. Subsequently, this section simply proves economic and financial illiteracy of our leaders.)

• introduce controls on the remuneration of senior executives, in accordance with the recommendations of the independent committee established by the Minister for Finance...
• maximise sustainable employment in the sector
  

(What sector? How about maximising sustainable employment of proof-readers for future Government programmes?)

Recognising that unemployment will rise significantly in the period ahead, the Government and Social Partners will work together to maximise employment and help those who lose their jobs by:

• designing a flexicurity approach appropriate to Irish conditions which keeps people working where feasible and equips people to return to employment as quickly as possible by maximising the availability and impact of education, upskilling and training supports

(Flexicurity is an unproven approach to labour market regulations that can be cost-prohibitive to the society at large and ineffective in delivering real employment gains. The Government, having committed itself earlier in the document to ‘evidence-based’ policies has just committed to a policy which was never debated and the evidence in support of which is thin and contradictory. What is far worse than that however, is that the entire labour market policy of Ireland has been at the will of the Government surrendered to an unelected, unaccountable to the taxpayers Partnership. This is an afront to democracy.)

• redeploying resources to ensure efficient and timely delivery of direct State supports to those who lose their jobs including social welfare payments, redundancy payments and payments to workers in cases of insolvent companies

The Government and Social Partners will address the serious and urgent difficulties facing private sector pension schemes.

(Again, after wobbling through a list of secondary measures, a major area where reforms in the public sector and private sector are truly needed is left unadressed!)


More to come, stay tuned...

Government's Plan for Ireland: Exclusive... Part 3

Continued as before, italics are my:

Part 2

Framework for a Pact for Stabilisation, Social Solidarity and Economic Renewal

3. Stabilising the Public Finances

The Government and Social Partners are agreed on the necessity to progressively reduce the level of Exchequer borrowing over the next five years in order to reduce the General Government Deficit to below 3% by 2013 through an appropriate combination of expenditure and taxation adjustments.

Public Expenditure

The adjustment to be achieved through reductions in expenditure will be based on the following criteria:

• ensuring a fair and equitable spread of the burden of adjustment
• maximising the level of sustainable employment
• solidarity with those now losing their jobs
• maintaining high-priority public investments
• careful forward priority planning
• increased efficiency, effectiveness and a focus on outcomes
  

(Recap the above bullet points: if the new Framework were to deliver careful forward planning, does the Government now admit that such was not used in the past? Can anyone explain to me how any of these bullet points constitute any sort of a forward-looking programme to deal with the crisis?)

The scale of the necessary adjustment requires scrutiny of all areas of public expenditure including agreeing measures on how to constrain growth in public sector pay and pension costs.
(Don't hold your breath - when we get to these in a second, you'll see that there is scarcely any change in Government's traditional modus operandi on public expenditure...)

Taxation

The adjustment to be achieved through further taxation measures will be informed by the following principles:

• Changes to be fair and equitable with a higher proportion falling on higher incomes while minimising distortionary effects between different forms of tax

(No details are given, but given that a further tax increase on those earning €100K pa are going to yield only a modest, if not negative, revenue increases to the Exchequer, expect ‘higher incomes’ to mean middle class – i.e. YOU! Of course, notice that the above means everyone’s taxes will go up.)

• Support the productive sector of the economy to keep Ireland competitive

(How can this be achieved? This Government, has been blabbering about this objective since the beginning of this century and has managed to do nothing to deliver on it. Do any of us believe they can do any better this time around? With Mary Coughlan at the helm of ETE?)

• Ensuring that tax expenditures are fully evidence-based

(This a pure case of political ‘gibberish’. What does ‘evidence-based’ mean in relation to tax expenditure? Evidence of the money being spent? Of efficiency? When no one, neither in the Government, nor in the civil service is made accountable – with their jobs, pensions, perks – for any failure in delivering on promises made, who cares if their spending decisions are ‘evidence-based’ or ‘we-just-feel-like-doing-it’-based? Does anyone care if Mr Cowen has evidence to support his lofty Building Ireland's Smart Economy ideas? It simply cannot work - evidence or none (see here)!)

• Broaden the tax base and make changes that are straight forward, easily understood and easy to administer

(Broadening tax base means finding new taxes to pin onto us. Oh, but the above is not enough, so…)

• Additional progressive tax measures consistent with the social solidarity approach

Additionally, given the urgency of the situation and the role that taxation will have to play in bringing stability back to the public finances, the Government is asking the Commission on Taxation to identify appropriate options to raise tax revenue and to complete its report by September 2009.

(So, recap – general taxes will go up, new taxes will be thought up and then there will be more progressive tax measures. And in return, the over-worked civil servicemen and underpaid ministers are going to give us ‘evidence’. And compassion.)

Stay tuned for more...

Government's Plan for Ireland: Exclusive... Part 2

Here is the document I promised to post, with some of my own comments in italics.

Part 1:

28 January 2009

Framework for a Pact for Stabilisation, Social Solidarity and Economic Renewal

1. The Challenge
…While the uncertainty about international developments makes predictions difficult, Ireland now faces the prospect of:

• a reduction of up to 10% in national income over the 2008-10 period (January 9, 2009 Addendum to the Irish Stability Programme Update from the DofF states that we are expecting a cumulative of 6.2% decline in GDP and an 8.2% decline in GNP. Where is the ‘up to 10%’ figure is coming from?)
  
• a loss of more than 120,000 jobs over 2009 and 2010 (this is consistent with DofF latest forecast, so if the Government expects national income to fall more than the DofF predicts, should the unemployment figure expectations be higher as well?)
• an increase in unemployment to more than 10%
• tax revenues in 2008 more than €8 billion below expectations, and a further fall projected in 2009, creating an unsustainable Exchequer deficit
• without further adjustments, a General Government Deficit in the range of 11% to 12% of GDP for each year up to 2013
  

There are in fact significant downside risks to these projections including:

• a steeper or more prolonged downturn in our main trading partners
• the possibility that global financial market problems deepen or persist for some time
• further exchange rate appreciation
• a further decline in international and domestic confidence and investment

(So nothing really to do with us, then? Clearly our leaders do not think that the loss of competitiveness, sky-high costs, climbing taxes, inept governance, lack of any economic development platform for the future and a host of other problems besieging Ireland Inc are not something we should be concerned in the future...)

This document therefore sets out a framework within which the Government and Social Partners have agreed to develop a Pact for Stabilisation, Solidarity and Economic Renewal.

2. Shared response through partnership

...In developing a Pact, the Government and Social Partners are fully committed to an approach in which all sectors of society contribute in accordance with their ability to do so, and conversely the most vulnerable, low paid, unemployed and social welfare recipients are insulated against the worst effects of recession.

(It will be interesting to see how the Government is going to achieve this. Is the Revenue going to treat those of us who become unemployed in 2009 when it comes to collecting taxes for 2008 with kid gloves by ‘insulating’ us from the need to pay back taxes if doing so puts our families over the edge or is this a case of caring going too far? The Government certainly gave it no thought when it raised taxes in Budget 2009.)

The Government and Social Partners believe that by making the correct decisions now, and committing to working together through the further difficult challenges which lie ahead, we can deliver reforms which allow us to still realise our shared goals for Irish society, most recently outlined in Towards 2016, while also laying the foundations for sustainable economic recovery.

(Need I remind you that Towards 2016 is a document primarily designed to reward public sector workers, offering nothing to the vast majority of our private sector employees, taxpayers and consumers. Furthermore, I personally fail to see how, if the Government expects the crisis to continue through 2013, can we deliver on what was originally conceived as an 10-year long plan within 2 last years of its existence?)

More to follow...

Government's Plan for Ireland: Exclusive... Part 1

Watch this space - I will be publishing Government's Briefing to the Social Partners - received from my academic sources - as soon as I read through the document. For now, part 1 of analysis...

Since the beginning of this week, a media circus surrounds the hot air factory we call the Upper Merrion Street.

Yet, ask anyone in the street what they think will be the outcome of the Social Partnership talks and the responses you get are pragmatic. "Taxes will go up for all!" "[the unions] will make us pay for public sector salaries and job security." "The Partners will get nowhere. Look, the Government can't control its own spending."

They are right. Common sense tells us that the Government that sat on its hands as the crisis unrolled through out 2008 is simply incapable of change. Our Cabinet has no progressive thinkers at the top.

When Mr Cowen took over from Bertie the reigns of this state, his first economic argument was in favour of preserving lavish wage increases granted to senior public sector employees and politicians. Incidentally, this was also the last thing Bertie did as far as economic policy is concerned. When President Obama sat down for his first day in office, he froze salaries of senior public officials.

Notice the difference? Right, it's that leadership thing that Obama seems to have, while our Brian- Brian- Mary Tri-Headed Hydra appears to absolutely lack.

But don't take my words for it. Look at the economic policy tofu they've been feeding to the markets and the Social Partners in the last couple of weeks.

Per sources advising the talks participants on economics side, the Government has forwarded a proposal to the Partners that includes:

• significant 'income adjustments',
  
• the adoption of budgetary 'stabilization' programme for 2009-2013,
  
• a nationwide 'jobs and skills summit' to be presided over by FAS,
  
• a reform of taxation – after the Commission on Taxation produces its recommendations, and
• unspecified public expenditure 'savings' after mid-2009, and a reform of pensions.
  

All of these ideas have been floated by the Government since July 2008 and none have seen any progress, with exception for the first round of 'income adjustments' (oops, tax increases) passed in Budget 2009.

In fact, the Government has now fallen so far behind the news curve, that it is undoing its own earlier plans. For example, Department of Finance January 2009 Stability Report factors into its budgetary deficit projections the minimum level of public expenditure savings of €16.5bn through 2013. Yet, according to the news coming out of the Partnership talks, the Government was asking for 'up to €15bn in spending cuts in 2009-2013'.

So much for the adoption of a budgetary stabilization programme. DofF's forecast is for the Exchequer deficit to run at 9.5% of GDP in 2009, 9% in 2010, 6.5% in 2011 and 4.75% in 2012, assuming the Government cuts €16.5bn starting now, not in the second half of 2009. Without these cuts – we are likely to be in an Icelandic deficit territory through 2020.

Surreal? Wait till you look closer at the rest of the Government proposals.

'Income adjustments' for 2009 and beyond are nothing else but tax increases on ordinary families and consumers who already face higher taxes (income and VAT), rising unemployment, falling wages and upwardly mobile public services costs. If anyone thought that a near tripling in personal bankruptcies in 2008 was a sign of a serious problem, wait until our Government's efforts to 'stabilize' the economy take a massive bite out of ordinary incomes.

No FAS-led "Jobs Fair" would be able to mop up even one tenth of the unemployment created by these Government-induced 'income adjustments'. FAS spends ca 7 times the average annual wage per each job created. At this rate 85,000 jobs that the Department of Finance forecasts to be lost in 2009 will take a cool €20bn 'Job Fair' to replace. And 85,000 is the number not counting in the jobs lost by the rapidly evaporating foreign migrants.

Finally, don't be fooled by the lofty ideals of reforming taxation and pensions. The official brief has only one stated purpose for such reforms – to raise more revenue out of the private sector economy to pay for more spending. Public sector's favorite folly is to tie us all into a mandatory pension scheme and then take away tax incentives to save.

Not to help up to 250,000 homeowners who will be stuck in the negative equity by the end of 2009, nor to aid families crippled by childcare costs or healthcare bills. Most certainly – not to give an inch back to the pensioners and savers whose funds have been devastated by the collapsed market.

Our only hope is that a handful of economically literate Partners might stand their ground in these absurd talks. Otherwise, as a fellow panelist of mine exclaimed at a recent radio discussion concerning our economic future, "We all will be truly screwed…" By those who are supposed to serve us, I might add.

Irish policy & rising jobs losses

750 job losses at First Active, over 2,800 jobs losses last week alone... we are in a meltdown mode by all possible means and the social partnership, the government and most of the opposition are clearly out of depth on what needs to be done.

I said 'most of the opposition' because there are pieces and bits of forward thinking still coming through in a handful of statements issued by FG and Labour. However, these do not, as of yet, represent a credible and effective platform for a policy response.

Here is a statement from Fine Gael Enterprise Spokesman Leo Varadkar TD issued today:

"Fine Gael has called on the Government to waive PRSI payments in 2009 for companies taking on new employees, declare war on red tape, launch an immediate review of overpriced electricity and gas charges, and impose a freeze on local authority charges and Government levies. The Government must also scrap the damaging VAT hike in the Budget, and overhaul FÁS into a rapid reaction agency which can provide public works schemes for the unemployed.”

Good beginnings of a policy here, but take a deeper look:

• Waiving PRSI payments in 2009 for companies taking on new employees is, in effect, a subsidy for jobs creation, not for jobs retention. On the margin, it is an incentive to create lower-end jobs, but it will do nothing to preserve thousands of financial services jobs;
• Declaring war on red tape is simply sloganeering. Most of our red tape comes from Brussels and the Irish Government has no say on this. Instead, culling the army of quangoes that mushroomed in recent years and rebating the savings back to the taxpayers might help;
• Reviewing energy prices - a good idea, but beware: it will spell an end to the Green Party agenda of subsidising wind and other alternatives via minimum price guarantees. I personally have no problem with this, though;
• Freezing local charges and levies - at current levels - will do nothing more than provide an injection of a vitamins potion to a dying patient. We need a wholesale reform of the local authorities structure to lead in cutting - dramatically - these costs;
• VAT increases must be scrapped, and in fact, a cut in the VAT rate should be implemented, but the main problem is in declining after-tax incomes, not in rising consumption expenditure;
• Overhauling Fas into some sort of a lean, mean jobs-creation machine ignores the basic problem with this organisation - no state body can 'create' jobs. The best Fas can do is take money from the taxpayers and spend this money on token training programmes. The efficiency of such programmes to date has been €250K spent per job added. Even if Mr Varadkar manages to cut this by 2/3rds, it will still be more than €2.40 spent per €1 in average wages added. You might as well pay the unemployed that €1 in welfare and burn the remainder €1.40 in a fireplace. At the very least you'll get some heat - more than what you'll get out of 'overhauled' Fas. For a real solution to the Fas problem - see the second bullet point above.

This brings us to the issue of what should be done. The main problems, as I have pointed on numerous occasions, faced by our economy are:

1. Public sector insolvency;
2. Households' and companies' indebtedness; and
3. Uncompetitive domestic economy dragging down exports growth with it.
   

All three require a small number of resolute measures.

Public Sector: cut the spending (capital and current) by ca 10-15% and use one half of that to plug the deficit hole, while the other half should be rebated to the households to pay down homeowners' and pensions' deficits;

Households' balancesheets: the above will address, in part, the issue of precautionary savings demand and repair household balancesheets. More, though will be required to restore demand for credit, so use banks recapitalisation scheme to raise equity in the banks and rebate this equity back to the households via a voucher-like scheme;

Companies balancesheets: Many of the domestic Irish companies struggling today are, frankly, insolvent and incapable of operating as an ongoing concern in the environment where growth is slower than 4% per annum. These must be allowed to fail. As there is no better mechanism to sort the sick from the healthy than the market, the State should resist the desire to 'repair' companies' balancesheets. Instead, the state should enact emergency cuts in local authorities budgets and cut local authorities charges and tax cuts to consumers to stimulate demand (see below). One policy on business side to be enacted should involve a PRSI tax cut and the introduction of the full credit for private health insurance purchases against the health levy contributions.

Local Authorities & Quangoes/Regulatory Authorities (RA): Within 4 months, the Government should produce the first draft of a local authorities reforms package cutting the number of local authorities down to 4 - GDA, North East & Midlands, West and South. The savings to be achieved in this reform should be set at a minimum 50% of the combined budgets of the current authorities being pulled. A comprehensive review of the Quangoes and Regulators must be carried out by a non-political independent panel working in a transparent, open manner, reporting by April 1 2009. The objective should be to:

• completely and effectively separate regulatory authorities from their respective sectors and the Government;
• introduce effective RAs oversight by the Dail;
• reduce the number of quangoes by at least 75% and the number of RAs by at least 30%, with corresponding reductions in staff and budgets; and so on.

Domestic economy reforms:

(1) Tax policies:

• cut VAT back to 17% across the board,
  
• cut CGT to 15%,
  
• replace stamp duty with a land-value tax (or a variant of such) phased along some amortization schedule for stamp duty paid by the existent homeowners;

(2) Structural reforms

• dissolve the Social Partnership;
• privatise - via a public voucher system for disbursement of state shares - all semi-state enterprises (those state enterprises that hold more than 50% market share in their respective sectors - e.g ESB, CIE, DAA, VHI, etc) must be broken up in the process of privatisation;
• beef-up the Competition Authority with direct enforcement and prosecution powers;
• reform CBFSAI to detach it completely from the Department of Finance.

This is, by any measure, only a partial list of priorities. In fact, if anyone wants to add to the list, feel free to email your suggestions to me.

Public Sector: A Feast Amidst the Plague: Update I

Here is another interesting observation concerning Public Sector earnings.

The figure below clearly shows that wages in the lowest earning categories of public sector fall within 1 standard deviation of the total public sector wage (i.e the average). This disputes an argument that there is any significant degree of heterogeneity in pay within our public sector.

Statistically, this shows that not a single category of workers in the Public Sector (identified by their respective sub-sectors of employment) earn less than the overall Public Sector average.

Indeed, this data (taken from the CSO - see here) proves that within the public sector, the so-called 'low paid' areas or professions enjoy a relatively average rate of pay, with the average itself being artificially inflated by the higher earning categories. In other words, there is no pleading relative poverty for any sub-sector of the public sector employment.

PS: Did anyone notice an apparently bizarre logic our public sector trade unions have taken to in arguing against any cuts in public sector wages?

Well, they are arguing that such a cut would be deflationary (in case you have not noticed, deflation is a new evil). Thus, their argument goes, to rescue our economy out of the current crisis, one should stick to the excessive wage increases granted to the public sector employees under the last Social Partnership deal. But hold on, weren't the same trade unions also arguing that high inflation in the past made it imperative to raise wages paid to the public sector employees?

In other words, ICTU/SIPTU and the rest of them are having it both ways: inflation or deflation, they'll have a pay rise in the name of the nation's economic health...

Have a cake, eat it, and get the rest of us to pay for both?

Public Sector: A Feast Amidst the Plague

According to the latest CSO figures (here):
“Average weekly earnings in the Public Sector (excluding Health) rose by 2.9% in the year to September 2008. The index of average earnings …rose by 3.6% for the same period. Average weekly earnings rose by 1.7% in the year to June 2008 while the index of average earnings rose by 2.5% for the same period.”

Oh, no, I am not making this up. Here is an illustration from CSO's release:Only a month-and-a-half after Mr Lenihan thundered first about saving €440mln in 2008 (he actually ended the year overspending €370mln rather than saving a penny) and €2bn in 2009 (we know where that promise is going) and a month before he launched his ‘patriotic’ tax increases in Budget 2009, according to CSO:
• Public sector wages were still climbing up, while
• Public sector employment… well, shall we let CSO speak on this:
“A total of 258,200 people were employed in the Public Sector (ex Health) in September 2008 compared to 251,100 in September 2007 [a rise of 7,100]. In the year to September 2008 employment in the Education sector increased from 93,500 to 97,900, a rise of 4,400. Overall employment in the Public Sector was 369,100 in September 2008, an increase of 5,200 compared with September 2007. Employment in the Health Sector decreased from 112,800 in September 2007 to 110,800 in September 2008, a decrease of 2,000.”

Chart illustrates…
All sub-sectors of public employment are up! While the rest of the economy is buckling under the weight of a severe recession.

Oh, dear, who can now take our Brian-Brian-Mary Trio seriously?


PS: to our previous post (here):
According to CSO release today, retail sales volumes fell by 1.2% m-o-m in November, with the annual rate of decline of 8.1% (exacerbating a 7.5% decline in October). The last time the annual rate fell to these levels was in February 1984. November core sales (ex-motor) volumes fell by 1.9% m-o-m, and by 7.8% y-o-y. Car sales were down 11% y-o-y. Overall, core retail sales have now fallen - in y-o-y terms - at a rate not seen since April 1975. Consumers are clearly boycotting Brian-Brian-Mary policies and spending only on bare necessities at home, preferring to take their Euros to Northern Ireland, the UK, the Continent, the US or anywhere else where they are welcomed. In doing so, they indeed fulfill their real (ass opposed to Lenihaenesque) patriotic duty of serving their families' needs!


PPS: a fellow economist (hat tip to Brian) just asked (rhetorically) if these figures mean that we might register and unadjusted decline in December retail sails. My view - quite possibly. And January sales, and February sales, and so on, well into a -4.5-6% fall in retail sales for 2009! Laffer Curve is merciless - raise taxes, see revenue evaporate. Brian-Brian-Mary should have been sent to Economics 101 before they were allowed to run the country!

A foreigner? We are not too welcoming in our Public Sector...

Few months back I was invited to a presentation by the Immigrant Council of Ireland, attended amongst others by a senior civil servant in charge of one of our core Government Departments. During a lively discussion about racism and discrimination in Ireland, our brave Public Sector employee professed to be concerned about discrimination in the private sector employment. I, somewhat rhetorically, asked him if he perceived a disproportionately small number of foreign nationals employed in the public sector (inclusive of our state enterprises), as compared against their much stronger presence in the private sectors to be a sign of something dodgy going on in the state employment. He flared white with indignation.

Hmmm… figures from CSO’s Foreign Nationals: PPSN Allocations and Employment, 2007 (here) released on January 8 give my concern a strong backing.

Table below lists employment (per CSO) by sector (including foreign share of employment) of foreign nationals in Ireland in 2007.
Note: PS stands for ‘Public Sector’, while NPS denotes ‘Non-Public Sector’. * marks percentages reflective of a slightly different categorization used by CSO in listing various time series.

The share of non-Irish nationals in overall employment in the economy in 2007 was ca 20.1%, with foreign national comprising 30.6% of employment in the broadly defined private sector economy and 6.5% of employment in the public sectors.

Setting aside two public sectors with significant contribution by foreign non-nationals: Education and Health, the rest of public sectors had only 1.4% of their entire employment pool covered by the foreign nationals.

For a foreign national residing in Ireland, the probability of ending up in Public Sector employment ranged from 11.1% in Health & Social Work, to 3.9% in Education, to ca 2.2% in our semi-state companies and 1.6% in Public Administration. In other words, a foreigner is 19 times (!) more likely to gain a job in our private economy than in the most insulated and unions-protected Irish Public Administration sector!

It is also worth noting that within the Education category, only 663 foreign staff were employed in secondary education (heaviest unionization), the rest were working in either primary (1,068 – virtually un-unionized) or tertiary education (less unionized). In Transport, only 98 were in Transport via railways (unionized), while the largest share were employed (6,844) in less unionized Other Land Transport.

At the same time, there is absolutely no sign of lower level of skills amongst the foreigners as compared to Irish workers.

Why wouldn’t our workers’ rights defenders, like SIPTU, ICTU, Impact etc, take up the case of finding out what is going on inside our state-controlled employment?