The Real Level of
Unemployment
Irish Congress of Trade Unions
June 2010
1
Economic Policy is Destroying Jobs
Unemployment has been soaring. From just 87,000 unemployed in
December 2006, it rose slowly to 126,700 by June 2008 but by end of last
year it was 267,400 persons and will rise to near 300,000 this year. The
unemployment rate of 13.7% for May means it is around 288,000 persons
officially unemployed. The real figure, which included discouraged workers
etc. is higher, as will be seen. The official CSO figure for 6 months ago for
potential unemployment was 16.5% in Ireland. 1
The government’s ‘jobs policy’ is a) to bail-out the private banks with
taxpayers Euros; b) to deal with the public finances by slashing and
burning; c) and make Ireland ‘more competitive’ - whatever that means,
because they don’t appear to know themselves.
Bailing out the banking system has taken over €14.5bn out of the public
finances - in our tax Euros. It is a highly deflationary policy. The billions in
the banks is being used not for further lending to business, but is being
hoarded to increase their capital ratios. It is reducing aggregate demand
and is thus job-destroying.
Similarly, the way in which the real crisis in the public finances is being
dealt with is also highly deflationary. By choosing to go for wholesale cuts
and very few rises in taxes on the well-off (which would not be deflationary,
as most wealthy save a good proportion of their money, as previously
outlined by Congress2) demand in the economy is further reduced. This is
combined with cuts in the investment programme under the NDP.
1
QNHS for Q4, ‘09, published on 24 March 2010, Table 20 where it was 16.5% for “surplus 3” unemployment.
The most up to date live register tables on unemployment will not be published until the end of this month and it
will be for quarter ending 31st March 2010.
2
Budget 2010 Supplement “Areas where taxes and should be raised in Budget 2010”, Congress, 2009.
2
A judicious programme of cost reductions, combined with targeted tax rises
would have been (and still can be) far less deflationary. Irish domestic
demand is down by almost 10 per cent in just the past three years and
investment is down by about 65%!
Thirdly, the simpleton’s definition of ‘competitive’ focuses on short term
movements in earnings. For them, it means wage cuts – although the
National Competitiveness Council do not agree. This policy is again
deflationary. It has been executed unilaterally by Government twice in the
public sector and has impacted in parts of the private sector.
Together the whole thrust of policy is to reduce demand – fast – and thus
destroy jobs.
All of these measures combined constitute a major anti-employment policy
– they are weakening demand and thus jobs. These policies are not
working, as will be shown (and everyone on the ground already knows).
Further, employees’/labour’s share of National Income has fallen to a very
low 50% this year. The balance of the national cake goes to corporates,
shareholders and owners of capital.
What is the real level of Unemployment?
There is a deep employment crisis in Ireland. Officially 295,000 are
unemployed or 13.7% of the labourforce. The real figure is much higher.
In the Euro area unemployment averaged 10.1% according to Eurostat on
1st June 2010 and it was 9.7% for the EU 27. Germany had a fall in its
unemployment rate from 7.6% to 7.5% in the past year, due to its jobs’
stabilisation programme and its stimulus. The highest rate is in Latvia with
over 22%, followed by Spain at 19.7% and the lowest is Netherlands at
4.1%.
3
Some 37% of under 25 year old unemployed males were long term
unemployed – ie, for over one year. This was six months ago when the
data was last provided and is likely to be worse today. It is a serious
problem as its sets a downward trend for these young men: it is also a loss
of potential output now and in the longer term for the economy and for
society. In December 2010, there were 44,400 males under the age of 25
of the total unemployed of 267,400. We will have an update to end of
March, by the end of this month.
During the boom, government policy favoured having immigration as part
of policy to reduce average earnings, rather than upskilling or retraining
the unemployed. It did not take the opportunity to deal effectively with
what was still a high level of unskilled and underskilled workers and actual
high levels of unemployment in some geographical areas. While official
unemployment was low at under 5% from 1999 to the end of 2007, the
official figures for those years still revealed a potential labour supply of
almost twice this at around 8%. Active labour market policies were pursued,
but were not as well targeted at those in disadvantaged estates and other
workers requiring and deserving of attention.
The problem is far worse now. The rate of unemployment which was 4.5%
in mid 2007, has trebled in just three years. And we know this is an
understatement. The real level is higher - with discouraged workers, casual
workers, unwilling emigration and many under-employed, including many
self-employed.
Many of the under-employed are self-employed, who do not have sufficient
work. This is largely thanks to weak and falling domestic demand due to
the deflationary policies of government. Cutting welfare, cutting wages and
pouring money into the banks is taking money out of the economy, when it
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should be doing the opposite - in a carefully targeted Jobs Stimulus
Package.
Just as government cut direct taxes and gave huge tax breaks to the
builder/speculators during the boom years from 2001 to 2008, when taxes
should have been maintained or increased to dampen down the boom3, the
government is again pursuing the wrong policies – making things worse!
What is happening to unemployment? Well, the government and the ‘green
shoots brigade’ (armed with electron microscopes and vivid imaginations)
thought that as unemployment had stabilised for 4 months at 13.4%,
things were improving!
They neglected:
a) the 60,000 who will leave Ireland this year (up from just 8,000 in
2009) and the 40,000 or more who will leave next year;
b) the tens of thousands who are staying in education as they have
no work to go to;
c) the tens of thousands who are staying at home as they have no
work to go to;
d) the tens of thousands who are retiring early as they have no work
to go to.
e) The thousands who are in casual work or in involuntary part-time
work who would like full time jobs.
It can be seen that the numbers at work is down greatly from 2008. The
fall in numbers working and paying taxes is down almost a quarter of a
million – 244,000 this year. There was an even bigger fall since 2007, as
3
As argued by Congress in the period. See our Submission to the Investigation into the reasons for the
banking Crisis, May 2010.
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will be seen. It can be seen where people are in work and how it has fallen
in industry which includes construction.
Structure of Irish Employment
2008
2009
2010f
2011f
2100
520
1465
115
1929
411
1422
96
1856
373
1395
88
1857
370
1395
88
6.3%
11.8%
13.7%
4.9%
10.2
11.1
14%
19.6
12.1
Emigration
Invol/Forced
+39
-8
-60
-40
LF Participation
64.2
61.2
60.1
59.9
Employment
 Industry
 Services
 Agric
Unemployment
Rate
Males under 25s
Long term
Sources: CSO, ESRI, Central Bank
The level of net inward migration of almost 40,000 in 2008 has turned
into an outward flood and this is the net figure. People are still retuning to
Ireland but many more are leaving. Sadly the labourforce participation
rate which was up to over 64% just a few years ago has fallen
substantially as the fall in jobs was turned into a drought by Government
polices.
Look at the collapse of the Irish economy in the first graph in the
following page called Graph 5.1 The 2008-09 Recession in historical
comparison : Percentage change in real GDP peak to trough.
It is the
third highest peak-to-trough collapse after Turkey and Iceland. (as
Ireland did not have a recession in recent years there is only one bar for
us). However, this is measured by GDP. When the more accurate
measure of Irish national income, GNP is taken, Ireland is way ahead of
even Iceland (Isl) and Turkey. Our government’s engineered collapse in
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National Income is a shameful collapse of 20% - way below that of
Iceland at just over 14% (of its GDP)! It can be seen that only Poland and
Australia did not have a recession.
As the second figure shows - Graph 5.4 Change in Labour force
Participation in the 2008-09 Recession on this page, Ireland has had the
biggest drop in labourforce participation rates in this recession - of all the
richest countries in the 30 OECD member states.
7
The graph on the following page (Graph 5.12 Projected increase in the
long term and structural unemployment rate) shows that while the fall in
youth participation in work is rising fast in many countries (the lighter
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column - below 0 for most countries), Ireland has had the second biggest
fall in the participation in older workers during the Crash.
In its latest report forecast, the OECD says the greatest rise in structural
unemployment will take place in Ireland and in Spain, where the rise will
be over 3%. In contrast, the report says that “some continental European
countries and Japan face less risk of unemployment hysteresis this time…
…as the increase in the actual unemployed is too small to crease a
structural unemployment problem eg Austria, Germany Japan and
Netherlands.”
It can be seen from the second graph on the following page (Graph 5.14
Labour force Participation Rates for Older and Younger workers) that
Ireland will be second after Spain in the projected increase in structural
unemployment, but the change in the structural unemployment (the mark
/dash on
the columns) will be over 3% for both countries. This is
considerably higher than virtually all other states and will be substantially
above the average, according to the OECD economists.4 Hence Ireland’s
place at the end of the graph, as the worst performer for older workers.
4
The four OECD graphs were published last week in Paris in its Economic Outlook, 2010.
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What is the true level of Irish unemployment?
It has been seen that Ireland has a deep unemployment crisis. It was
caused by the pro-cyclical policies of the government in the boom years
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which made the Crash much worse than in virtually any other developed
country.5
It is clear that there are a large number of people who are willing to work,
available for work and cannot get work.
The potential labour supply is calculated in three ways. The first surplus is
the unemployed plus marginally attached or discouraged workers and
passive jobseekers. Then others, not in education who want to work, are
added to give the second tier of potential workers. The full potential is
when the underemployed and part-time workers who want to get full time
jobs, are added.
In December 2009, the rate of unemployment was 13.2% but the full
potential supply of people, those who would take up work, if it were
available, was 16.5% then, according to the CSO data.
The labourforce participation rate has fallen substantially. Since 2007 it
fell by 2.6%. Had it remained at the 2007 level for 2010, by which time a
total
of
267,000
more
became
unemployed,
then
the
rate
of
unemployment would be closer to 18.% rather than the 13.7% as in the
official data for May.
Thus
Ireland’s
real
rate
of
unemployment
–
our
potential
employment - is today between 17.5% and 18.5% - well above
today’s 13.7%. This wider definition of unemployment gives us a
clearer extent of the problem.
5
See Congress submission in FN 3 above which explains why Ireland had one of the worst economic
Crashes – thanks to direct tax-cutting during a boom, tax subsidies to property investors/”developers”
and little or no regulation – all neo-liberal economic policies. Together - a lethal cocktail, as we now all
know for sure – except the government and its advisors!
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The lost potential for the economy, for society and for individuals is huge
when almost one in five person is without work. The level of human
suffering is immeasurable. For the economy, the loss of output is vast
and impacts on all – including the employed. It really is time for to
reverse the deflationary polices and to build a focused jobs strategy.
ends
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