24/11/15: Over-skilled & Under-Employed: Welcome to the Brave New World of Europe

Irish policymakers are keen telling us that jobs creation has been robust and of high quality in recent years. Which, thus, begs a question: why does OECD data show Ireland as having one of the most severe mismatches between workforce skills and employment?

Apparently, based on OECD data, Irish economy is not exactly offering jobs on par with our fabled skills. And, apparently, based on OECD data, our illustrious workforce holds a big untapped potential for productivity gains that are not being realised by the inflows of MNCs and FDI and domestic economy jobs creation to-date.

OECD doesn't quite offer an Ireland-specific explanation of this paradox, but it does offer an insight as to why the same phenomenon plagues virtually all of Europe:

Apparently, the quality of firms (or their systems for allocating Human Capital or both) in Europe is just not up to par. It turns out that the Irish disease of underemployment is a European disease.

This is especially tragic, given that we have a huge over-skilling present in the economy - in basic terms, our skills levels are too high for what our economy is capable of absorbing:

Few years ago, I quipped in my Sunday Times (now defunct) column that we are heading for Unemployed PhDs crisis. It looks like we have arrived.

So welcome to the Brave New World where years in education and training and years of on-the-job experience count for zilch when it comes to affording pensions, savings and investments.

13/8/2012: Telling tales about our 'Productivity'?

IDA recently used the following chart in the context of Irish competitiveness comparatives to the rest of EEC:

According to the above, Irish labour productivity per person employed is at 136.9% of the EU27 average, which makes us the second most productive economy in the Euro Area and the third most productive in the EEC. Of course, the thing that jumps out in the chart is the massive over-performance in output terms by two other 'special' countries: Luxembourg and Norway. This should ring lots of alarm bells when it comes to trusting the above data to base actual comparative assessments on.

It turns out that adjusting our productivity performance for GDP/GNP gap so as to remove the portion of our output that has absolutely no anchoring in Ireland (net after-tax factor payments to foreign investors) implies Irish productivity index at around 102-106% of the EU27 average, placing us below-to-just-above Germany and ahead of Greece.

I wouldn't argue that that is indeed where we are positioned, but rather that the chart used by IDA is simply reflective of vastly over-inflated real productivity of our workforce, just as it is for Norway (petro-dollars economy) and Lux (an economy with massively undercounted non-resident workforce and an industrial scale 'dry cleaning laundry' for European, EEC & Eastern European corporates).

13/8/2012: National Competitiveness: Not Exactly Good Numbers for Ireland

An interesting paper, THE DETERMINANTS OF NATIONAL COMPETITIVENESS by Mercedes Delgado, Christian Ketels, Michael E. Porter and Scott Stern (NBER Working Paper 18249) looked at three broad and interrelated drivers of foundational competitiveness:

• social infrastructure and political institutions (SIPI),
• monetary and fiscal policy (MFP), and 
• the microeconomic environment. 

The study defined foundational competitiveness as "the expected level of output per working-age individual that is supported by the overall quality of a country as a place to do business".  The paper focused on output per potential worker, which is "a broader measure of national productivity than output per current worker". This "reflects the dual role of workforce participation and output per worker in determining a nation’s standard of living".


Using data "covering more than 130 countries over the 2001-2008 period", the authors found "a positive and separate influence of each driver on output per potential worker". Specifically, "we find significant evidence for the positive and separate influence of SIPI, MFP, and the microeconomic conditions on national competitiveness":

• Consistent with prior studies, institutions (SIPI) positively influence national output per potential worker;
• However, microeconomic conditions have a strong positive impact as well, even after controlling for current institutional conditions;
• Microeconomic conditions have a positive influence on competitiveness even after controlling for historical institutional conditions and incorporating country fixed effects (which offer a broader measure of a country’s unobserved legacy);
• Current institutions and macroeconomic policies "seem largely endogenous to historical legacies";
• "Overall, the findings strongly suggest that contemporaneous public and private choices, especially those that relate to microeconomic competitiveness, are an important driver of country output per potential worker and, ultimately, prosperity".

The paper also defined a new concept, global investment attractiveness, "which is the cost of factor inputs relative to a country’s competitiveness".

Using the new metric, the authors rank the countries with respect to their global investment competitiveness:

The unpleasant bit is that in 2010, a year after we began the process of 'competitiveness improvements' that has stalled since around mid 2011, we were ranked just 24th. The pleasant bit... we still made it into top 25.

And in terms of other comparatives, here are few charts:

Oh, the naughty, naughty authors did get some things right: "In the case of Ireland, we used GNP instead of GDP because of the size of dividend outflows to foreign investors".

And here's what they had to say in terms of their analysis of the Global Investment Attractiveness scores (GIA): "Countries with high GIA tend to experience a strong positive growth, including China and India (with growth rates above 8% and 4%, respectively).  In contrast, countries with low GIA tend to experience a high contraction in output with growth rates below the median value, including Italy, Spain, Ireland, and Venezuela, among others."

Now, wait, is that really the neighborhood we (Ireland) are in? You wouldn't think so from our policymakers/IDA/EI/Forfas/ESRI/CBofI/... statements.

15/07/2011: Irish electricity prices and subsidies

Some interesting data on electricity prices within the EU - the latest is now available from the Eurostat, covering H2 2010. Keep in mind, between 2008 and 2010 we have experienced the largest deflation of overall consumer prices in the Euro area.

In terms of household prices for electricity, 2010 H2 price in Ireland was €0.1875/kWh up on €0.1855/kWh in H2 2009 and down from €0.2033/kWh in H2 2008. Back in H2 2008, Ireland ranked as the 6th most expensive electricity market for households in EU27, plus Norway, Turkey, and Bosnia & Herzegovina (let's call these EU27+3 for brevity hereinafter). The ranking improved to 7th most expensive in H2 2009 and to 9th in H2 2010. Chart below (arranged in order of increasing cost for H2 2010) illustrates.
Small, but progress: over 2 years overall decline was 7.8% in average prices.

Next, the cost of electricity for industrial users: In H2 2010 Irish electricity prices for industrial users averaged €0.1131/kWh down from €0.1419/kWh in H2 2008 and down on €0.1175/kWh in H2 2009. So the decline in the industrial electricity prices over the same period of time was almost 3times larger than for households - 20.3%.
Why? One reason - taxes. Our Government, incapable of creating a level playing field for investment and entrepreneurship has made a conscious choice to shift tax burden from the shoulders of producers/employers onto the shoulders of employees/households. Hence, as with income tax and other taxes, business taxes are kept lower for electricity than for households.

Before taxes are added, Irish household electricity cost was 0.1629 in H2 2010, which was 44.9% above the comparable pre-tax price for industrial users. Now, suppose this premium was justified by higher transmission costs to the households. And do note that Ireland and France are the only two countries that do not report break down of final prices by generation and transmission. For all other countries, network transmission costs account for about 42.15% on average of the total pre-tax price of household electricity in H2 2010. But here comes a tricky thing. After taxes are factored in, final price premium for electricity paid by households over and above industrial users rises to 65.8%.

What's the 20.85% tax wedge on the premium about? Most likely - a subsidy from the households to industrial users, cause, you know, to be competitive we have to charge someone to subsidise someone else... Although the subsidy is a sort of Pyrrhic victory, you see, since even with this transfer, Irish industrial users face the 6th highest electricity tariff in the EU27+3 in H2 2010, same as in H2 2009, but an improvement on the 4th highest in H2 2008.

Let us say thank you to the Social Partners and CER who work this hard protecting our consumers' interests.