15/7/15: Is it Trust or Fiscal Performance? Greece v Excessive Deficit Procedures

As noted in the previous post, that Trustless Greece apparently is a better example of European policies of internal devaluation at work than the best-in-class Ireland. At least by metric of competitiveness.

But what about Fiscal Trust? After all, there is a unifying metric for that one - the European Commission own Excessive Deficit Procedure. And here is a handy table from EU Commission own presentation on the topic:

Yes, yes... a little help. Since 1997 (that is across the Celtic Tiger era boom too), Ireland was on the penalty bench with EU in relation to breaking fiscal rules for 11 years. Greece - also 11 years. One has zero Trust in its EU account. The other has Fort Knox worth of that 'hard' EU currency...

Either the Rule is dodgy or something's fishy in the arithmetic...

15/7/15: Is it Trust or Competitiveness? Greece v Unit Labour Costs

Remember hard currency of Europe - no not the euro - Trust? And remember how Greeks lack that currency because of failed reforms and incomplete adjustments?

Here's a nice chart from the EU Commission itself showing changes in economic competitiveness (the EU fetishised) metric of Unit Labour Costs.

In this, untrustworthy Greece is more competitive in 2013-2015 than the best-in-class Ireland. 

So if the internal devaluations work their magic, as the EU seems to believe, then by this metric, Greece should have been a roaring success story... with a surplus of Trust to spare some for Ireland.

Then, again, the EU won't notice other factors at play in determining GDP growth. The idiosyncratic ones, like, say, corporate tax inversions and 'knowledge development boxes' or (whispering) taxation double-sandwiches for lunch... Because everything is about Trust in Europe...

25/11/2014: Irish Recovery: A Dreamland of Falling Wages & Rising Work Hours

More fantastic news from our 'labour cost competitiveness' fairytale economy: average weekly earnings fell 0.8% y/y to EUR671.70 in Q3 2014, just as the economy continued to recover from the blistering growth of Q2 2014.

Revised figures for the sustainably booming Q2 2014 showed earnings falling to EUR684.97 in Q2 2014 - a decrease of 1.5% y/y.

Table to summarise the latest data:

• Average hourly earnings fell 1.4% y/y in Q3 2014. 
• Average hours worked rose 0.6% (normally a good sign), which meant that people worked more for less. 
• Hence average weekly earnings fell. Cheers must be heard at the IBEC and across Official Ireland as that meant the labour costs have shrunk. 
• Except, while average hourly earnings fell 1.4% (-EUR0.29) y/y, average hourly labour costs fell only 1.1% (-EUR0.26) so workers got poorer more than economy got 'competitive'. Oh dear… beggar thy people economics at work.

CSO notes that "average weekly earnings increased in 6 of the 13 sectors in year to Q3 2014". By converse this means average weekly earnings did not increase in 7 of the 13 sectors. Kind of looks gloomy, doesn't it?

So I must get more positive on the news front. Good news is that "the largest percentage increase in the Industry sector (+3.4%) from EUR805.44 to EUR832.59. The largest percentage sectoral decrease was recorded in the Professional, scientific and technical activities sector which saw weekly earning fall from EUR792.27 to EUR750.35 (-5.3%)."

Now, wait… that last bit is somewhat puzzling if we are to assume we are operating an exports-intensive smart knowledge economy backed by 'best employment creation' by the MNCs.

Ah, never mind… here's the summary:

Over the longer range, "average hourly total labour costs decreased by 1.9% over the four years to Q3 2014 from EUR24.72 to EUR24.26 per hour. The percentage changes across the sectors ranged from -10.8% in the Education sector (from EUR40.66 to EUR36.28) to +7.6% in the Information and communication sector (from EUR31.51 to EUR33.90)."

All of which should make us only more competitive as the 'labour costs mean everything' economy, and less attractive to anyone with marketable skills. Now, lets hope companies will pick up investment on foot of all these 'savings' because it is hard for me to see how on earth these figures can be supportive of any growth in household consumption and investment.

And, of course, the above figures fly in the face of claims of robust jobs growth and rapidly declining unemployment. Just as they fly in the face of the claims that our economic growth is driven by knowledge-intensive R&D-rich innovation economy.

29/5/2014: Earnings in Ireland: Something's Fishy in that Murky Water?..

Average weekly hours and earnings were released by CSO this week, covering Q1 2014 data. Remember, these are delivered in the context of reportedly growing employment and accelerating economic activity, right?

Ok, top-line observations: y/y average weekly earnings are down 0.4% or EUR2.66/week (EUR138.32 per annum, assuming paid holidays and not adjusting for working hours etc, but you get the point: in 2013 a person earning average weekly earnings level of salary would have had EUR2,346 per month in disposable after-tax income, in 2014 they have EUR2,341 per month).

Worse than that, the decline in weekly earnings was driven by a drop in average hourly earnings (down 0.5% y/y) against flat hours worked (31.2 hours/week on average). In other words, we are creating jobs in tens of thousands, but seemingly there is no pressure on hours worked and there is downward pressure on hourly earnings.

Were these changes down to cuts in bonuses, perhaps?

Well, no: excluding irregular earnings, average hourly earnings fell 0.6% y/y. So if you work in a job where bonuses are not present, congratulations, the economic recovery is biting into your earnings even more. It is worth noting that this trend is not uniform in the economy: private sector hourly earnings rose 0.6% but public sector earnings fell 2.5% year on year. And steepest increases in earnings took place in enterprises with less than 50 employees (+2.3% y/y), while steepest declines took place in enterprises with 50-250 employees (-2.9% y/y). Large enterprises saw average hourly earnings excluding irregular earnings fall 1.6%.

So short term falls in earnings are down to public sector and larger enterprises...

Of course, earnings can be volatile even y/y, so here is a handy comparative for earnings changes on Q1 2010:

Per CSO: "Across the economic sectors average weekly earnings increased in 7 of the 13 sectors in the year to Q1 2014, with the largest percentage increase in the Construction sector (+10.2%) from €639.35 to €704.41.  The largest percentage sectoral decrease in weekly earnings was recorded in the Education sector (-2.7%) from €814.12 to €792.03. Between Q1 2010 and Q1 2014 average weekly earnings across individual sectors show changes ranging between -6.3% for the Education sector from €845.59 to €792.03 and +13.6% for the Information and communication sector from €915.94 to €1,040.10"

Still, Public Admin & Defence are down just 0.1% on Q1 2010... shrinking Industry is doing swimmingly, as does Finance & Insurance & Real Estate...

On last bit: average working hours were unchanged y/y in private sector, but up 2.3% in public sector. Which is worrisome - rising employment in private sector should lift hours ahead of numbers employed, by all possible logic, since hiring more workers is costlier than letting those employed work longer hours for the same or even higher pay. Still, hours are static y/y, and are up by only 0.1 hour on Q1 2010... Puzzling... Worse: working hours are unchanged y/y and down on Q1 2010 for smaller firms, where wages pressures seem to be highest.

This simply does not gel well with the numbers of tens of thousands of new employees, unless, of course, new employees are working fewer and fewer hours...

27/9/2013: Internal Devaluation: Picking a Right Target?

Conventional wisdom of the 'internal devaluation' theory goes as follows: if a country like Ireland were to experience a structural shock, the path of adjusting to this shock lies via reduction in the cost of doing business (improving efficiency). Since adjusting the cost of Government or quangoes or Social Partners in the economy is an impossible task to undertake in a corporatist economy, then the only two things that can adjust to effect the 'internal devaluation' are capital costs (interest rates) and labour costs. In reality, however, capital costs are no longer responsive to interest rates since Ireland is in a major asset bubble bust and banking sector collapse. So we are left with deflating labour costs.

Aside from the knock-on effects such policies might have on aggregate demand and household investment, there is a nagging question of: can they be effective in reducing functional costs faced by businesses? In other words, are reduced labour costs associated with economic efficiency gains?

Logic suggests that even if successful, reductions in labour costs can only be as effective as labour costs' share in total output of the economy. How so? Suppose labour costs fall 10% and labour costs share in the economy is 50%, then, assuming freed resources are used somewhere more efficiently, the output boost can be substantial. If, however, labour costs are only 10% of the economy, then the impact will be smaller.

Now, here's a chart from the Robert Schuman Foundation research paper on Labour Costs and Crisis Management in the Eurozone:

According to this chart, Ireland was the second / third (to Greece and Italy) worst candidate in the euro area to implement internal devaluation policies along the lines of labour costs adjustments. And today Ireland is the second worst candidate (after Greece - the unlabelled purple line).

Yes, Ireland was the best candidate to apply these policies as the place with the worst labour costs competitiveness during the pre-crisis period.

But the adjustments, even though only partially successful, may be not impacting significant enough proportion of the economy to make much of the real difference.

28/11/2011: Average Hourly Earnings Q3 2011 Ireland

Latest earnings and labour cost figures for Q3 2011 in Ireland are providing some interesting insights. This post will deal with data for earnings and the subsequent post will highlight findings for employment levels.

Average Hourly Earnings in:

• Industry stood at €21.28 in Q3 2011, down 0.47% qoq and unchanged yoy. AHE in Industry are up 1.77% on Q1 2008.
• Construction stood at €18.93/hour in Q3 2011, down 2.82% qoq and 4.30% yoy. AHE in Construction are down 1.82% on Q1 2008.
• Wholesale and Retail Trade and repairs of vehicles and motorcycles are now at €16.39/hour, down 1.50% qoq, up 1.93% yoy and up 0.06% on Q1 2008.
• Transportation and Storage AHE are at €19.18/hour, down 1.59% qoq,  -1.39% yoy and -3.76% on Q1 2008.
• Accommodation & food services AHE are at €12.87/hour, up 2.71% qoq, +3.21% yoy and +2.88% on Q1 2008 (highest rate of increase in AHE on Q1 2008).
• Information and Communication AHE are now at €27.36/hour, up 3.87% qoq, down 0.04% yoy and down 0.15% on Q1 2008 (currently third highest AHE).
• Financial, insurance & real estate AHE are at €28.42/hour, down 2.27% qoq, up 3.12% yoy and down 14.60% on Q1 2008 (currently second highest AHE and highest decrease in AHE since Q1 2008).
• Professional, scientific & technical AHE are now at €23.59/hour, down 0.08% qoq, down 2.64% yoy and down 3.52% on Q1 2008.
• Administrative & support services AHE stands at €16.22/hour, down 0.61% qoq, up 5.39% yoy and up 1.44% on Q1 2008.
• Public administration and defence AHE  down 0.95% qoq, up 0.31% yoy and down 6.44% on Q1 2008, currently at €25.99/hour (fourth highest AHE, but also second highest decrease in AHE since Q1 2008).
• Education AHE are at €34.58/hour (highest AHE), down 0.83% qoq, up 4.06% yoy and up 2.46% (second highest increase) since Q1 2008.
• Human health & social work AHE are at €23.54/hour, donw 0.63% qoq, up 0.09% yoy and up 1.90% on Q1 2008.
• Arts, entertainment, recreation and other services AHE at €16.26/hour, up 1.12% qoq, down 1.22% yoy and up 1.31% on Q1 2008.

Charts below illustrate:

Private sector AHE are now at €19.22/hour compared against Public sector AHE of €28.54/hour. Total economy AHE are at €21.64/hour. QOQ, public sector AHE declined 0.972%, while private sector AHE fell 0.979% (virtually identical falls), while YOY public sector AHE is up 1.06% and private sector AHE is up 1.64%. However, relative to Q1 2008, public sector AHE is down 0.35% against private sector AHE down 1.13%.

As the result, AHE gap between public and private sector now stands at 48.49%, slightly up qoq on 48.48% in Q2 2011 and slightly down on 49.34% in Q3 2010.