THE GREAT STAGNATION Michael Taft Research Officer UNITE the Union Exiting the Great Recession into . . . • The Great Recession is nearing the end • Employment is expect to bottom out this year though domestic demand may still fall marginally over the next year or two. • We are in danger of entering into a Great Stagnation – a statistical recovery but a continuing peoples’ recession characterised by a number of economic and social crisis. • The following focuses on 3 of these 1st Crisis: Unemployment • Over the life-time of this Government – after the Jobs Initiative, the Action Plan for Jobs, two self-styled ‘job enhancement’ budgets and the recent 10-point employment plan - the coalition now projects that unemployment will fall by only 1 percentage point. • The subjective PES measurement shows an even higher level of unemployment: 17.3 percent compared to the official 14.8 percent (seasonally adjusted). • The IMF projects unemployment to be close to 12 percent in 2017. Double-digit unemployment will be with us for some time. Unemployment Projections SPU April 2011 14.9 Budget 2013 14.6 14.2 14.1 13.7 13.1 12.7 11.5 10 Coalition Taking Office 2012 2013 2014 2015 Under-Employment • Another feature of the crisis is the rise in under- employment – those who are willing and able to work extra hours but can’t access the work. This is giving rise to the phenomenon of precarious work and the precariat. • This is likely to predominate in the low-paid sectors – especially as the Government incentivised part-time work through the reduction of the low-rate Employers’ PRSI. • MANDATE, in a survey of its own members in the retail sector conducted by Behaviour & Attitudes, found that 38 percent were actively seeking additional hours. Under-employment Rate % 8.0 7.6 5.8 6.0 4.5 Q3 08 Q3 09 Q3 10 Q3 11 Q3 12 Employment Projection Revisions • When the Government took office, employment was projected to increase by 104,000 between 2011 and 2015. • A year later, this was revised downwards to 62,000 • In Budget 2013, this was revised downwards again – to 31,000. • Long-term projections, based on IMF data, suggests that we won’t return to pre-crisis levels of employment until 2022. Employment Projections: 2011 - 2015 104,000 62,000 31,000 SPU April 2011 SPU April 2012 Budget 2013 Long-Term and Structural Unemployment • Employment in managerial and professional grades has increased during the crisis. Non-manual and manual working classes have been disproportionately hit. • The danger of long-term and structural unemployment becoming embedded – with the social issues that raises. • This will further depress wages and living standards in domestic sectors. Employment: 2007 to 2012 Managerial & Prof/Tech Non-Manual Manual Elementary Total 6.8% -11.6% -15.1% -30.6% -34.5% 3 Areas of Concern • 1. Between 2000 and 2007, nearly 60 percent of all new employment came from construction and non-market services. This doesn’t count business, financial and personal services reliant upon property activity. Nor does it factor in the demand created in other domestic sectors. • Future employment, on current trends, will not be able to rely on the construction or non-market sectors to drive employment. • 2. With domestic demand expected to remain subdued, employment growth will `remain sluggish. Even when the output gap closes – unemployment will still be in double-digits. • 3. Domestic Demand and Employment Employment Demand 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 1986 1990 1995 2000 2005 2010 2014 Output Gap and Unemployment 13.9 Output Gap Unemployment 14.8 14.7 14.6 14.2 13.4 12 -2.4 2009 -3.2 2010 -2 2011 -2.1 2012 -1.9 2013 -1.2 2014 12.5 11.7 0.1 0.3 2016 2017 -0.4 2015 2nd Crisis: Deprivation • Last year the IMF applauded Ireland for protecting its • • • • citizens against rising poverty. They produced a graph showing that relative poverty had not significantly increased up to 2010. This is absolutely correct. And the conclusion – ‘Ireland’s strong social supports have avoided a rise in poverty during the crisis’ is absolutely wrong. The reason relative poverty did not rise? Median income fell - the only EU-15 country to do so up to 2010. When the bottom half of society is getting poorer, it is no consolation to the tell the poorest that though they are getting poorer they not getting relatively more poorer Deprivation Measurements • The CSO and Eurostat measure the level of deprivation experiences. CSO’ uses 11 deprivation experiences: • Home and Clothing: unable to afford heat / keep house adequately warm / two pair of strong shoes / new clothes / replace worn out furniture / waterproof coat • Food: unable to afford meat/chicken/fish every second day / roast once a week / • Social Participation: unable to afford to go out in last 2 weeks / have friends/family over for a meal/drink once a month / to buy presents for family/friends once a year Deprivation • Over 1,000,000 people experience multiple deprivation • • • • experiences. This has doubled since the crisis began. Nearly 340,000 of these are children. Deprivation is not a phenomenon of the ‘welfare class’. Nearly 25 percent of one-income households (and 10 percent of two-income household) experience multiple deprivation. Deprivation persists into higher income deciles. This data is from 2010 – reasonable to assume, after three regressive budgets, and poor economic performance, that deprivation levels are even higher today. Enforced Multiple Deprivation Experiences Population (000s) 1,006 762 616 610 585 512 2005 2006 2007 2008 2009 2010 Enforced Multiple Deprivation Experiences Children (000s) 338,496 258,880 195,151 2008 2009 2010 Enforced Multiple Deprivation Experiences In-Work Deprivation (%) One Income Two Income 22.6 17.3 15.1 9.6 5.9 2008 5.1 2009 2010 Enforced Multiple Deprivation Experiences Deciles – Net Equivalised Income (%) 2008 2010 41.6 32.1 31.4 16.8 13.7 7.4 4.8 0.2 1st - 2nd 3rd - 5th 6th - 8th 9th 0 1.6 10th Food Poverty • The DSP commissioned a study into food poverty. Criteria: • Inability to afford a meal with meat or vegetarian equivalent every second day • Inability to afford a roast or vegetarian equivalent once a week • Whether during the last fortnight, there was at least one day when the respondent did not have a substantial meal due to lack of money • Another word for food poverty: hunger Food Poverty Food Poverty Rate By Category: 2010 (%) 24 20 16 15 14 10 Total Population Find it Fair, Bad or Activities Lowest 40% Difficult to Very Bad Limited due Income Make Ends Health to Health Group Meet Status Problem Chronic Illness Eurostat: Severe Material Deprivation • Eurostat has a harsher measurement: severe material deprivation which measures those who cannot: • pay their rent, mortgage or utility bills * keep their home adequately warm * face unexpected expenses * eat meat or proteins regularly * go on holiday * afford a television set * a washing machine * a car * a telephone. • Satisfies the criteria if respondent cannot afford 3 of the 9 deprivation Eurostat: Severe Material Deprivation 2010 Population (%) Greece Portugal Ireland Italy Belgium France UK Germany Austria Spain Finland Denmark Netherlands Sweden Luxembourg 11.6 9.0 7.5 6.9 5.9 5.8 4.8 4.5 4.3 4.0 2.8 2.7 2.2 1.3 0.5 Eurostat: Severe Material Deprivation 2010 Households with Dependent Children (%) Greece Ireland Portugal Italy France Belgium UK Spain Austria Germany Denmark Netherlands Finland Sweden Luxembourg 11.6 9.2 9.2 7.5 6.5 6.4 6.2 4.8 4.8 4.6 2.8 2.2 2.1 1.3 0.3 3rd Crisis: Investment • Investment has fallen to the lowest level in the Eurozone and is projected to remain a bottom dweller for the foreseeable future. • By 2017, Irish levels of investment will be nearly half that of the Eurozone average – equivalent to nearly €17 billion. Investment Past and Projections Eurozone Ireland 30 25 % of GDP 19.2 20 15 10.7 10 5 1985 1990 1995 2000 2005 2010 2017 Challenges to Investment • The Government is aggressively cutting its own investment expenditure. Between 2011 and 2015 it will cut investment by over 36 percent. • However, even were this reversed, would only make up a small difference between Ireland and Eurozone average. • Need to create the conditions, the incentives and vehicles to increase business investment. • The historical trends not encouraging. In the period prior to the recession – Irish corporate investment and nonbuilding investment lagged behind EU-15 averages. Government Investment % of GNI 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1985 1990 1995 2000 2005 2010 2015 Corporate GFCF EU-15 Average Ireland GDP Irish GNP 14.0 12.0 % 10.0 8.0 6.0 4.0 2.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Non-Building GFCF Other EU-15 Average Ireland - GDP Ireland - GNI 11.0 10.0 % of GDP 9.0 8.0 7.0 6.0 5.0 4.0 3.0 1998 2000 2002 2004 2006 2008 2010 One Perspective to the Challenge • In early 2010 Davy Stockbrokers assessed the increased • • • • in capital stock since 2010. They found: “investment by private sector in 'core' productive stock (was) pitiful . . .” “the increase in our 'core' productive capital stock was related to the state or semi-state sectors. It was not driven by private enterprise.” Over 2/3 of increased productive investment came from state and public enterprise sectors. Historical patterns and surveys pose the challenge of how we can maximise public and private capital into productive infrastructure. Conclusion • In 2010 economists and analysts published an open letter warning the Government that austerity would result in a lengthy period of low-growth, high unemployment and high debt. UNITE and the trade union movement signalled this warning even earlier. Unfortunately, there is nothing to suggest that they will be wrong. • Austerity is working – and that is the problem • An economy carrying high levels of unemployment, rising levels of deprivation, and generating low levels of investment is not a natural candidate for long-term fiscal stability. Conclusion • The potential of political economy – crude reductionist benchmarks can only remain acceptable if consent is given. To date, that consent has been given - by many, reluctantly so. But the future is not certain and certainly not inevitable. • If that consent is withdrawn, if the contest heats up if you will, throwing out more choices – then a more constructive debate may emerge. • It won’t make up for the damage that has been done to date – but it might just limit the damage that is waiting for us in the future.