23/8/2014: Labour Costs and Euro area's myth of 'productivity' gains

Looking back at July 2014 IMF Article 4 paper on Euro area (most of which I covered back when it was published), here is an interesting chart mapping changes in the euro area countries' unit labour costs.

The chart is complex, so let me point out few things in it:

Firstly: improvements in the unit labour costs (ULCs) is reflected in the vertical distance between the black dot (accumulated change in ULCs over 2000-2007 period: higher level of the dot reflects lower competitiveness or higher ULCs compared to EA17 levels) and the black bar (accumulated change in ULCs over 2008-Q3 2013 period).

1. This shows that Ireland has delivered (a) the highest ULCs deterioration of the sample of countries reported over 2000-2007 period, and (b) since 2008, Ireland has delivered the largest improvement in competitiveness (ULCs drop) of the sample. 
2. Second largest improvement in ULCs was recorded in Greece and it is comparable to, but modestly shallower than in Ireland; third and virtually indistinguishable from the second - in Spain and fourth in Portugal.
3. The above two facts suggest that improvements in the ULCs are indeed related to the rates of increases in  unemployment: all countries with significant improvements have seen dramatic rises in unemployment. Jobs destruction 'helps' competitiveness.

Secondly, coloured bars show composition of gains over two periods. Here, the following points arise:

1. Labour costs declines have been responsible for the lion's share of ULCs gains in Greece, followed by Ireland, Italy, Portugal and Spain.
2. Labour costs declines are dramatic in the case of only two countries: Greece and Ireland.
3. The above two facts suggests that jobs destruction impacted dramatically in the sectors that were employment/labour-intensive, allowing for substantial moderation of labour costs across the remaining economy on average. So 'concentrated' jobs destruction 'helps' improve competitiveness a lot.
4. Meanwhile, productivity gains in economy were significant contributors to improved competitiveness in Spain, followed - by some margin of difference - by Ireland, and Portugal.
5. Points 1-2 and 4 together strongly suggest that in Ireland and Spain (and to a lesser extent Portugal) gains in competitiveness came about not because the remaining working population suddenly became more productive, but because the new jobless were working in sectors that were less productive, plus because remaining workers got paid less on average.

One more point: of course, our (and other euro area 'peripherals') gains here are measured not in absolute terms, but against EA17 aggregate levels of competitiveness, so to a large extent, our gains in the chart above are also down to their (other euro area countries') losses in competitiveness. This is exactly what the above figure shows for Austria, Germany, Belgium and the Netherlands.

That's happy times of productivity growth in the euro area 'periphery', then... down to throwing people off the employment bus and bragging about fabled improved productivity for the remaining passengers...

31/10/2013: NAIRU or NDRU? Euro Area Inflation Hits 0.7% in October

So Euro area unemployment rate remained stuck at 12.2% in September, same as in August 2013 and up on 11.6% in September 2012. 18,451,000 Euro area residents were unemployed back in September 2012 and this rose to 19,447,000 a year later. Meanwhile, in the US, unemployment rolls fell from 12,093,000 to 11,254,000 and the rate dipped from 7.8% to 7.2%.

With inflation (HICP) coming at 0.7% in October, so we are now no longer in the Non-Accelerating Inflation Rate of Unemployment (NAIRU) environment, but rather closing on what I would call a Near-Deflationary Rate of Unemployment (NDRU)... welcome to the madness of European econo-politics, where the Central Bank is powerless to do much to re-inflate the economy and fiscal authorities are powerless to restart growth, while households and companies struggle under the weights of debts.

Two charts:

Leading growth indicator Eurocoin (see more detailed analysis in the next blogpost) has improved somewhat in October, but monetary policy remains stuck in zero-bound, zero-power corner. And ditto for inflationary signals:

We are now at the lowest rate since November 2009 when it comes to HICP.

Good news, ECB can now easily move to 0.25% rate... but will it? Ask Angela...

5/3/2013: Charts to Keep You Awake at Night

Bragging rights alert...

Business Insider published their slide deck of charts that keep investment community awake at night... The full 'horror show' is on here: http://www.businessinsider.com/wall-streets-most-worrying-charts-2013-3#

I have contributed the following chart: http://www.businessinsider.com/wall-streets-most-worrying-charts-2013-3#constantin-gurdgiev-trinity-college-dublin-37

8/1/2013: Unemployment in Europe: The Ugly

Euro area unemployment figures for November are out and the ugly, truly abysmally ugly reality of the EA17 economic conditions can no longer be hidden from view:

Per chart above, seven out of EU27 states have overall unemployment rates above 14%. A year ago, there were 5. 19 states had higher unemployment in November 2012 than in November 2011, 2 had identical rate and 6 have seen unemployment levels decline.

Just under 1/4 of all young people in the labour force in EA17 are now unemployed. This doesn't include: students held over in studies beyond their optimal studies duration by the prospect of not having a job, life-long young unemployed, emigrants and 'one-year visa-holders', and in some countries, this also excludes those who are 'engaged' in state training programmes.

In Greece, the rate is at 57.5% and in Spain it is 56.5%. In five out of 27 states, more than 1/3 of all youths in the labour force are now unemployed.

In Ireland - Europe's poster-boy for 'austerity' and recovery - the rate of youth unemployment (and recall that Ireland has the youngest population in the EA17) is now running at 29.7% (down from 30.5% y/y), the 7th highest rate in EU27.

In the 'Social Welfare' haven of Europe, 24.4% of younger people are unemployed. In the US the rate is 15.6%. Virtually every economy - save Germany - has unemployment rates for younger workers in excess of where they were at Euro introduction point.

31/8/2012: Poor newsflow for Friday

Clearly confidence-instilling newsflow from the euro area today:

"Euro area annual inflation is expected to be 2.6% in August 2012 according to a flash estimate issued by  Eurostat, the statistical office of the European Union. It was 2.4% in July."

ECB is expected to downgrade EZ growth forecasts once again, per this report.

"The euro area (EA17) seasonally-adjusted unemployment rate was 11.3% in July 2012, stable compared with June. It was 10.1% in July 2011. The EU27 unemployment rate was 10.4% in July 2012, also stable compared with June. It was 9.6% in July 2011." So the contagion to EU10 from EA17 is now feeding through.

And a scarier chart on youth unemployment via ZeroHedge:

And two charts to remind you where we are heading:

All of which is pretty much summarized in another blog post on euro area growth, here.

05/11/2011: Jobs destruction in Ireland 2008-2010

So we had the Celtic Tiger, now we are having a Celtic Bust. Our extreme (for a young, small open economy with high levels of tertiary education - in numbers, if not quality - etc). But how do we stack up against other advanced economies in this area?

Here's some data from the OECD covering the period of the crisis (2008-2010, no annual data for 2011 yet) on jobs destruction in Ireland, compared to same in other advanced economies.

For a small economy, even in absolute terms, the number of jobs lost in Ireland in 2008-2010 period was 261,000 or 8th largest loss in the sample of 24 advanced economies. Net of new jobs created (+11,000), Irish economy lost 251,000 (note rounding differences) jobs in the period covered. The net loss we sustained in terms of jobs destruction in absolute terms was the 5th largest in the advanced economies sample.

Chart below puts the above numbers in relative context. As a percentage of total employment, Irish net jobs destruction was 12.2% - second highest after Estonia.

In terms of sectors most severely impacted by losses, Construction leads with 87.8% share of all jobs changes during the crisis. Surprisingly - being the source of so much destruction via Irish domestic banking collapse - Financial Services jobs category posted the shallowest jobs declines at 15.1%. This is most likely due to the lack of layoffs in the state-controlled banking sector, plus the resilience of the IFSC. The only sector that saw increases in jobs numbers is the sector of Community, social and personal services.