12/6/19: Irish Self-Employment Data: What It Says About the Entrepreneurial Nation

Official Ireland is quick to promote Irish indigenous entrepreneurship as evidence of a diversified economy, with domestic risk-takers bent on capturing international markets with new, innovation-intensive and modern goods and services. The reality, of course, is somewhat different. In 2017, based on the IMF estimate, sales of iPhones (not physically manufactured in Ireland at all) accounted for 25% of the state's GDP growth. And, on the other side, domestic self-employment, the cradle of entrepreneurship, has been on a decline.

Here are the latest statistics and trends:

Share of Irish labour force participants in employment that were engaged in self-employment has declined, on trend, from the late 1990, as did the share of those in self-employment with employees has been down-trending since around 2000-2001.  Some might think that the trend is driven by the self-employed construction workers, but that is not the case, since they bump in share of all self-employed run below the trend line in 2003-2006, and many of these workers exited employment in the crisis.

What about self-employed as the share of overall relevant (age 15 and older) population? Similar trends:

Current total self-employment share in overall population is on-trend, and that trend is down, not up. Self employment with employees trend is similar.

So about that entrepreneurship, and about the claims that the younger generations are becoming even more entrepreneurial, and about all those universities and ITs offering vast arrays of entrepreneurship programs, and about the preaching of entrepreneurial ethos and values... ahem...

20/2/19: Broader Measures of Irish Unemployment 4Q 2018

The latest Labour Force Survey for 4Q 2018 for Ireland, published by CSO, shows some decent employment increases over 2018, and a welcomed, but shallow, rise in the labour force participation rates. Alongside with a decrease (over FY 2018) in the headline unemployment rate, these are welcome changes, consistent with overall economic growth picture for the state.

One, much less-reported in the media, set of metrics for labour markets performance is the set of broader unemployment measures provided by the CSO. These are known as Potential Labour Supply stats (PLS1-PLS4). The measures also show improvements over 2018, just in line with overall employment growth. However, these measures clearly indicate that after 11 years running, the 2008-2014 crises remain still evident in the labour force statistics for Ireland.

Here is a chart of all four PLS measures, compared to their pre-2008 averages:

Note: Increase in PLS2-PLS4 series at 3Q 2017 is down to change in assessment methodology under the LFS replacing QNHS, with data pre-3Q 2017 adjusted to reflect that change by the CSO.

As a reminder, the above data series are defined as:

• PLS1 adds discouraged workers. These are individuals who are out of work but who have become disillusioned with job search. 
• PLS2 includes all individuals in Potential Additional Labour Force (PALF). The PALF is made up of two groups: persons seeking work but not immediately available and persons available to work but not seeking, of which discouraged workers make up the largest number. 
• PLS3 includes all those in the previous two categories (PLS1 and PLS2) along with persons outside the labour force but not in education or training. 
• PLS4 is the broadest measure of unemployment or potential labour supply and is calculated by adding part-time underemployed workers to PLS3. Part-time underemployed workers are individuals currently working part time who are willing and available to work additional hours. The broadest measure of unemployment (PLS4) stood at 13.7 per cent in 4Q 2016. At 4Q 2017 it was 18.7 per cent and by 4Q 2018 it was down to 17.5 per cent.

14/4/2012: Latest data on EU27 ICT skills

In a recent (April 1, 2012) article for the Sunday Times (link here) I wrote about the results of the Eurostat computer skills survey across the EU27 member states. The report this was based on is E-Skills Week 2012: Computer skills in the EU27 in figures (http://eskills-week.ec.europa.eu/).

Quoting from the article:

“One core metric we have been sliding on is sector-specific skills. This fact is best illustrated by what is defined as internationally traded services sector, but more broadly incorporates ICT services, creative industries and associated support services.

Eurostat survey of computer skills in the EU27 published this week, ranked Ireland tenth in the EU in terms of the percentage of computing graduates amongst all tertiary graduates. Both, amongst the 16-24 years olds and across the entire adult population we score below the average for the old Euro Area member states in all sub-categories of computer literacy. Only 13% of Irish 16-24 year olds have ever written a computer programme – against 21% Euro area average. Over all survey criteria, taking in the data for 16-24 year old age group, Ireland ranks fourth from the bottom just ahead of Romania, Bulgaria and Italy in terms of our ICT-related skills.”

So here are the details of my analysis of the Eurostat data. Note, ranks reference EU27, plus Norway, Iceland and 3 averages treated as countries – EA12 (old euro area states), EU27 and Small Open Economies of EU27. In other words, ranks are reported out of 29 countries and 3 averages.

In terms of the overall proportion of computer graduates amongst all graduates, Ireland performs close to the mid-range of the overall EU27 distribution. In 2005, 2.9% of graduates were in CS disciplines against the EU27 average of 4% and EA12 (old euro area) average of 4.12%. By 2009 this number rose to 3.8% for Ireland, and fallen to 3.4% for EU27 and 3.37% for EA12. However, the averages conceal rather wide dispersion of scores across both the EU27 and EA12. Ireland’s overall performance in this category ranked 12th in 2009 data, below Greece, Spain, Malta, Austria, UK and Norway.

In terms of percentage of population who have ever used a computer as percentage of all individuals, the survey identifies results for two cohorts: aged 16-24 and aged 16-74. In Ireland, 98% of the population 16-24 years of age have used computer, against 81% for those aged 16-74. This compares against: 96.25% for EA12 and 96% for EU27 for those aged 16-24, and 79.2% for EA12 and 78% for EU27 for those aged 16-74. Despite this, Ireland ranks only 19th for 16-24 year old cohort in this parameter.

Now, we should expect a generational effect of higher (statistically) percentage for those of 16-24 years of age. And the gap appears to be present in the case of Ireland – 17 percentage points spread. The gap is consistent with the EU27 and EA12 averages of 18 and 17.8 percentage points. In other words, Ireland’s population computer usage is not exactly stellar to begin with and is not improving at a faster pace than European average with generations.

The survey also assessed what percentage of relevant population used basic arithmetic formulas in a spreadsheet. For EU27 and EA12 the corresponding percentages were: for cohort aged 16-24: 66% and 67% respectively. For Ireland the percentage was 54%, assigning to us rank 30th in the sample, with only Romania and Bulgaria scoring below us. For the full population (16-74 years of age), the EU27 and EA12 averages were 43% and 45.5% respectively, while for Ireland the corresponding percentage was 44%. Again, our inter-generational gap was lower than average either for EA12 or EU27, suggesting that not only we are extremely poorly scoring in this category as a whole, but that our inter-generational change in skills is working against us in comparison to the averages.

As per percentage of those who created electronic presentations, for EU27 and EA12 the averages were 59% and 63.1% for cohort of those aged 16-24 against Ireland’s 36%, earning Ireland 30th rank, ahead of only Bulgaria and Romania. The inter-generational gap for EU27 is 28 percentage points, while for EA12 it was 28.5 percentage points and for Ireland 15 percentage points. Again, we are falling behind and doing so from the weak position to begin with.

In terms of those who have written a computer programme, Ireland’s 16-24 year olds reported 13% of population against EA12 20.5% and EU27 average of 20%. For overall population (16-74 year olds), EA 12 average was 11.6%, EU27 average 10% and Ireland’s 9%. We are ranked 27th in the table in terms 16-24 year olds who have written a computer programme.

In terms of overall score for the younger cohort of 16-24 year olds (summing up percentages for all categories, plus third level CS education proportion multiplied by factor 10), Ireland total score comes in at 321, well below the total score for EA12 (368.5) and EU27 (365). Ireland ranks 28th in the league table in terms of overall computer literacy score, ahead of only Bulgaria, Italy, and Romania. In summing up all ranks, Ireland’s combined rank is 148 against 120 for EA12 and for EU27.

In the last chart above, higher gap signals more advanced skills for the younger cohort compared to general population: Ireland has low rank and low gap, implying that younger cohort skills are advancing at a slower speed than in other countries from already low skills base. In contrast, Finland has relatively low gap combined with high overall rank, implying that Finland's younger cohorts have faster than in Ireland rate of growth in skills compared to much higher overall level of skills already in place for the general population. Slovenia and Latvia are examples of countries where skills are relatively high for the younger cohorts compared to other countries and are growing fast compared to older cohorts.

3/4/2012: Sunday Times 1/4/2012 - Deep Reforms, not Exports-led Recovery, are needed

This is an unedited version of my Sunday Times article from 1/4/2012.

After four years of the crisis, there are four empirical regularities to be learned from Ireland’s economic performance. The first one is that the idea of internal devaluation, aka prices and wages deflation, as the only mechanism to attain debt deleveraging, is not working. The second is that the conventional hypothesis of a V-shaped recovery from the structural crisis, manifested in economic growth collapse, debt overhang and assets bust, is a false one. The third fact is that Troika confidence in our ability to meet ‘targets’ has little to do with the real economic performance. And the fourth is that exports-led recovery is a pipe dream for an economy in which exports growth is driven by FDI.

Restoring growth requires structural change that can facilitate private companies and entrepreneurs search for new catalysts for investment and consumption, jobs creation and exports.

For anyone with any capacity to comprehend economic reality, Quarterly National Accounts (QNA) results for Q4 2011, showing the second consecutive quarterly contraction in GDP and GNP, should have come as no surprise. In these very pages, months ago I stated that all real indicators – Purchasing Managers indices, retail sales, consumer and producer prices, property prices, industrial turnover figures, banking sector activity, and even our external trade statistics – point South. Yet, the Government continues to believe in Troika reports and statistical aberrations produced by superficial policy and methodological changes.

The longer-range facts about Ireland’s ‘successes’ in managing the crisis, revealed by the QNA, are outright horrifying. In real (inflation-adjusted) terms, in 2011, every sector of Irish economy remains below the pre-crisis peak levels. Agriculture, forestry and fishing is down almost 22%, Industry is down 3%, Distribution, Transport and Communications down 17%, Public Administration and Defence down 6%, Other Services (accounting for over half of our GDP) are down 8%. In Q4 2011, Personal Consumption was 12% below Q4 2007 levels, Gross Domestic Fixed Capital Formation was 57% down on 2007. The only positive side to Irish economic performance compared to pre-crisis levels was Exports of goods and services, which were just 1.2% ahead of Q4 2007 level.

Meanwhile, factor income outflows out of Ireland – profits transfers by the MNCs – were up 19% relative to pre-crisis levels. Despite a rise of 0.7% year on year, Irish GDP expressed in constant prices is still 9.5% below 2007 levels. Our GNP, having contracted 2.53% year on year in 2011, is down an incredible 14.3% on the peak. All in, Irish economy has already lost nine years of growth in this crisis, once inflation is controlled for.

We are now three years into an exports boom and the recovery remains wanting. Here’s why. Between 2007 and 2011 exports of goods rose €2.5 billion or just 3%, while imports of goods fell 31.3% - a decline of €19.6 billion. Over the same period, exports of services rose €5 billion, while imports of services increased €5.5 billion. All in, rising exports of goods and services accounted for just 35% of the increase in Ireland’s trade surplus. Almost two thirds of our trade surplus gains since 2007 are accounted for by collapse in imports. Taken on its own, the dramatic fall-off in imports of goods amounts to 91% of the total change in trade surplus in Ireland.

Both the Government and the Troika should be seriously concerned. Taken in combination with accelerating profits transfers out of Ireland by the MNCs, these numbers mean that Irish economy is struggling with mountains of private and public debts that exports cannot deflate.

Remember all the noises made by the external and domestic experts about Ireland’s current account surpluses being the driver of our debt sustainability? Last week, the CSO also published our balance of payments statistics for 2011. In 2010, Irish current account surplus stood at a relatively minor €761 million. In 2011, current account surplus fell to €127 million. If the entire current account surplus were to be diverted to Government debt repayments, it will take Ireland 579 years to bring our debt to GDP ratio to the Fiscal Pact bound of 60%.

The immediate lesson for Ireland is that we need serious changes in the economic fundamentals and we need them fast.

First, Ireland needs debt restructuring. We must shed banks-related debts off the households and the Exchequer. In doing this, we need drastic restructuring of the banking sector. Simultaneously, an equally dramatic reform of taxation and spending systems is required to put more incentives and resources into human capital formation and investment. Income tax hikes must be reversed, replaced by a tax on fixed and less productive capital – particularly land. All land, including agricultural. Entrepreneurship-retarding USC system must be altered into a functional unemployment insurance system.

Policy supports should shift on breaking the systemic barriers to domestic firms exporting and restructuring dysfunctional internal services markets that are holding companies back. Public procurement changes and markets reforms in core services – energy, water, transport, public administration, etc – must focus on prioritising facilitation of inward and domestic investment, entrepreneurship and jobs creation.

Delivery of health services must be separated from payment for these services, with Government providing the latter for those who cannot afford their own insurance. Private for-profit and non-profit sector should take over delivery of services. Exports-focused private innovation, such as for example International Health Services Centre proposal for remote medicine and ICT-related R&D, should be prioritized.

In education, we need a system of competing universities, colleges and secondary education providers. A combination of open tuition fees plus merit and needs-based grants for domestic students will help. We should incentivise US universities to locate their European campuses here, and shift more of the revenue generation in the third level onto exports. In the secondary education, we need vouchers that will encourage schools competition for students. In post-tertiary education we need to incentivise MNCs to develop their own corporate training programmes and services here.

This will simultaneously expand our skills-intensive exports and provide for better linkages between formal education and, sectoral and business training – something the current system is incapable of delivering.

One core metric we have been sliding on is sector-specific skills. This fact is best illustrated by what is defined as internationally traded services sector, but more broadly incorporates ICT services, creative industries and associated support services.

Eurostat survey of computer skills in the EU27 published this week, ranked Ireland tenth in the EU in terms of the percentage of computing graduates amongst all tertiary graduates. Both, amongst the 16-24 years olds and across the entire adult population we score below the average for the old Euro Area member states in all sub-categories of computer literacy. Only 13% of Irish 16-24 year olds have ever written a computer programme – against 21% Euro area average. Over all survey criteria, taking in the data for 16-24 year old age group, Ireland ranks fourth from the bottom just ahead of Romania, Bulgaria and Italy in terms of our ICT-related skills.

Not surprisingly, at last week’s Digital Ireland Forum 2012 the two core complaints of the new media and ICT services sector leaders were: lack of skills training domestically and draconian restrictions placed on companies ability to import key skills from abroad.

The Irish economy and our society are screaming for real change, not compliance with Troika targets and ego-stoking back-slapping ministerial foreign trips.

Box-out:

On the foot of my last week’s questions concerning the role of securitizations and covered bonds issuance by the Irish banks in restricting banks’ ability to control the loans assets they hold on their balancesheets, this week’s move by Moody’s Investors Services to downgrade the ratings of RMBS (Residential Mortgage-Backed Securities) notes issued by two of the largest securities pools in the country come as an additional warning. On March 26^th, Moody’s reduced ratings on RMBS notes issued by Emerald Mortgages and Kildare Securities on the back of “continued rapid deterioration of the transactions, Moody’s outlook for Irish RMBS sector; and credit quality of key parties to the transactions [re: Irish banks] as well as structural features in place such as amount of available credit enhancement.” The last bit of this statement directly references the concerns with over-collateralization raised in my last week’s note. Although Moody’s do not highlight explicitly the issue of declining pools of collateral further available to shore up security of the asset pools used to back RMBS notes, the language of the note is crystal clear – Irish banks are at risk of running out of assets that can be pledged as collateral. This, of course, perfectly correlates with the lack of suitable collateral for LTRO-2 borrowings from the ECB by the Irish banks, other than the Bank of Ireland last month. As rated by Moody’s, half of the covered RMBS notes were downgraded to ‘very high credit risk’ or below and all the rest, excluding just one, were deemed to deteriorate to ‘high credit risk’ status. Surprisingly, the Central Bank’s Macro-Financial Review published this week makes no mention of either the RMBS, covered bonds or the impact of securitization vehicles on banks’ balance sheets. See no evil, hear no evil?

28/3/2012: Sunday Times 25/3/2012 - Irish emigration curse

Below is the unedited version of my article for Sunday Times from 25/03/2012.

Last week, as Ireland and the world celebrated the St Patrick’s Day, close to fifteen hundred Irish residents, including close to a thousand of Irish nationals, have left this country. In all the celebratory public relations kitsch, no Irish official has bothered to remember those who are currently being driven out of their native and adopted homeland by the realities of our dire economic situation.

According to the latest CSO report – covering the period from 1987 through 2011, emigration from Ireland has hit a record high. In a year to April 2011 some 76,400 Irish residents have chosen to leave the country, against the previous high of 70,600 recorded in 1989. For the first time since 1990, emigration has surpassed the number of births.

Given the CSO methodology, it is highly probable that the above figures tell only a part of the story. Our official emigration statistics are based on the Quarterly National Household Survey, unlikely to cover with reasonable accuracy highly mobile and less likely to engage in official surveys younger households, especially those that moved to Ireland from East Central Europe.

For example, emigration numbers for Irish nationals rose 200% between 2008 and 2011, with steady increases recorded every year since the onset of the crisis. Over the same period of time, growth in emigration outflows of EU15 (ex-UK) nationals from Ireland peaked in 2008-2009 and halved since then. Prior to 2010, Irish nationals contributed between 0% and 10% of the total net migration numbers. By 2010 and 2011 this rose to 42% and 68% respectively. Meanwhile, the largest driver of net migration inflows prior to the crisis - EU12 states nationals - were the source of the largest emigration outflows in 2009, but their share of net outflows has fallen to 39% and 13% in 2010 and 2011 respectively. There were no corresponding shifts in Irish and non-Irish nationals’ shares on the Live Register. In other words, unemployment data for non-Nationals does not appear to collaborate the official emigration statistics, most likely reflecting some significant under-reporting of actual emigration rates for EU12 and other non-EU nationals.

There are more worrisome facts that point to a dramatic change in the migration flows in recent years. Back in 2004-2007 there were a number of boisterous reports issued by banks and stockbrokerages that claimed that Irish population and migration dynamics were driving significant and long-term sustainable growth into the Irish economy. The so-called demographic dividend, we were told, was the vote of confidence in the future of this economy, the driver of demand for property and investment, savings and consumption.

In 2006, one illustrious stockbrokerage research outfit produced the following conclusions: “The population [of Ireland] is forecast to reach 5 million in 2015… The labour force is projected to grow at an annual average 2.2% over the whole period 2005 to 2015. Combined with sustained 3% annual growth in productivity, this suggests the underlying potential real rate of growth in Irish GDP in the five years to 2010 could be close to 5.75%. Between 2011 and 2015, the potential GDP growth rate could cool down to around 5%.”

Since the onset of the crisis, however, the ‘dividend’ has turned into a loss, as I predicted back in 2006 in response to the aforementioned report publication. People tend to follow opportunities, not stick around in a hope of old-age pay-outs on having kids. In 2009, only 33% of new holders of PPS numbers were employed. Back in 2004 that number was 68%. Amazingly, only one third of those who moved to Ireland in 2004-2007 were still in employment in 2009. Almost half of those who came here in 2008 had no employment activity in the last 2 years on record (2008 and 2009) and for those who came here in 2009 the figure was two thirds.

In more simple terms, prior to the crisis, majority (up to 68%) of those who came here did so to work. Now (at least in 2009 – the last year we have official record for) only one third did the same. It is not only the gross emigration of the Nationals and Non-Nationals that is working against Ireland today. Instead, the changes in employability of Non-Nationals who continue to move into Ireland are compounding the overall cost of emigration.

In order to assess these costs, let us first consider the evidence on net emigration in excess of immigration. In every year – pre-crisis and since 2008, there were both simultaneous inflows and outflows of people to and from Ireland. In 2006, the number of people immigrating into Ireland was above the number of people emigrating from Ireland by 71,800. Last year, there was net emigration of 34,100. Between 2009 and 2011, some 76,400 more people left Ireland than moved here.

Assuming that 2004-2007 period was the period of ‘demographic dividend’, total net outflows of people from the country in the period since 2008 through 2011 compared to the pre-crisis migration trend is 203,400 people. In other words, were the ‘demographic dividend’ continued at the rates of 2004-2007 unabated through the years of the current crisis, working population addition to Ireland from net migration would have been around 2/3rds of 203,400 net migrants or roughly 136,000 people. Based on the latest average earnings of €689.54 per week, recorded in Q4 2011, and an extremely conservative value added multiplier of 2.5 times earnings, the total cost of the ‘demographic losses’ arising from emigration can be close to 8% of our GDP. And that is before we factor in substantial costs of keeping a small army of immigrants on the Live Register. Some dividend this is.

This is only the tip of an iceberg, when it comes to capturing the economic costs of emigration as the estimates above ignore some other, for now unquantifiable losses, that are still working through the system.

In recent years, Ireland experienced a small, but noticeable baby boom. In 2007-2007, the average annual number of births in Ireland stood at just below 60,000. During 2009-2011 period that number rose by almost 25%. 2011 marked the record year of births in Ireland since 1987 – at 75,100. In the environment of high unemployment, elevated birth rates can act to actually temporarily moderate overall emigration, since maternity benefits are not generally transferable from Ireland to other countries, especially the countries outside the EU. Even when these benefits do transfer with families, new host country benefits replacement may be much lower than the benefits in Ireland. Which, of course, means that a number of emigrants from Ireland can be temporarily under-reported until that time when the maternity benefits run their course and spouses reunite abroad.

Even absent the above lags and reporting errors, net migration is now running close to its historic high. In 2011, there were total net emigration of 34,100 from Ireland against 34,500 in 2010. These represent the second and the first highest rates of net emigration since 1990.

At this stage, it is pretty much irrelevant – from the policy debate point of view – whether or not emigrants are leaving this country because they are forced to do so by the jobs losses or are compelled to make such a choice because of their perceptions of the potential for having a future in Ireland. And it is wholly academic as to whether or not these people have any intentions of returning at some point in their lives. What matters is that Ireland is once again a large-scale exporter of skills, talents and productive capacity of hundreds of thousands of people. The dividend is now exhausted, replaced by a massive economic, not to mention personal, social, and political costs that come along with the Government policies that see massive scale emigration as a ‘safety valve’ and/or ‘personal choice’.

Charts:

Box-out:

On 14^th of March, Governor of the Central Bank of Ireland, Professor Honohan has told Limerick Law Society that Irish banks should be less inhibited about repossessing properties held against investment or buy-to-let mortgages. This conjecture cuts across a number of points, ranging from the capital implications of accelerated foreclosures to economic risks. However, one little known set of facts casts an even darker shadow over the banks capacity to what professor Honohan suggests they should. All of the core banking institutions in the country currently run large scale undertakings relating to covered bonds and securitizations they issued prior to 2008 crisis. Since 2008, the combination of falling credit ratings for the banks and accumulation of arrears in the mortgages accounts has meant that the banks were forced to increase the collateral held in the asset pools that back the bonds. In the case of just one Irish bank this over-collateralization increased by 60% in the last 4 years. This is done in order to increase security of the Covered Bond pool for the benefit of the Bondholders and is achieved by transferring additional mortgages into the pool. In just one year to December 2011, the said bank transferred over 26,000 new mortgages into one such pool. As the result of this, the bank can face restrictions and/or additional costs were it to foreclose on the mortgages within the pool. Things are even worse than that. In many cases, banks now hold mortgages that had their principal value pledged as a collateral in one vehicle while interest payments they generate has been collateralized through a separate vehicle. The mortgage itself can potentially even be double-collateralized into the security pool as described above. The big questions for the Central Bank in this context are: 1) Can the banks legally foreclose on such loans? and 2) Do the banks have sufficient capital and new collateral to cover the shortfalls arising from foreclosing mortgages without undermining Covered Bonds security?