Wednesday, June 30, 2010

Irish Unemployment

Whilst today's new GDP figures will officially take us out of recession, our GNP growth (-0.5) and new, all-time-high, unemployment figures (13.4%) are stark proof of a so called "jobless recovery".

To me, the Irish economy is looking a lot like a ravaged rose garden; first attacked by an infection of black-spot and then plowed by a herd of bison. The chief gardener responded with sense; mends the fence, treats the infection, and prunes whats left back to strength. Now, afterwards, there are no green-shoots and all the gardener can think of is more pruning. I believe today's figures suggest that it's time we put the pruning scissors aside and consider adding some required nitrogen and phosphorus to the soil, and maybe investing in some new plants.

It is also worth noting that our unemployment rate is now almost double that of N.Ireland.

6 comments:

Kevin Denny said...

Problem is the Garden Center is reluctant to extend us credit.

Peter Carney said...

..so we should just sit back on the deck chair and hope for sunshine?

Kevin Denny said...

Well I gather Ireland is having a good summer so you could do worse. Sunshine, a hammock & a G&T: it doesn't get much better.

Martin Ryan said...

I posed the question before, given the limits associated with the current fiscal adjustment, what can be done about unemployment? I specifically asked "whether there any novel resource reallocations that could have implications for reducing unemployment?" Gerard O'Neill had some suggestions, which can be read in his comment on this post:

http://short.ie/79ps4h

Also, Liam linked to a Forbes article by Chicago economist Steven J Davis on a previous occasion:

http://short.ie/kdgi5k

My interpretation of the Davis approach is to temporarily reduce the extent of labour market regulations: to make it cheaper for employers to start hiring again.

Kevin Denny said...

Good point: we tend to associate "doing something about unemployment" with spending money. So the macro' people queue to say we can't afford it. What policy makers have been negligent about (& the economics profession too, to some extent) is that there are ways of increasing employment that do not require much, if any, additional public expenditure.
Cut the minimum wage for a start. The current level is clearly inappropriate given where the labour market is now. Tighten the benefit system: this could involve a reduction in the amount or duration of benefits. Monitor search effort more closely. All of these have been shown to have some effect. Although a lot of the evidence may have come from economies that are closer to the equilibrium rate.
The reason why these policies aren't heard about much is that they involve difficult choices. On the other hand, the government is so unpopular what have they got to lose? Of course, its easier to go waffling about the "smart economy" making up silly numbers about job creation.

Martin Ryan said...

A lot of the evidence may indeed come from economies that are closer to the equilibrium rate. But I think it is still a good place to start. I am reminded of the Nickell, Nunziata and Ockel paper (Economic Journal, 2005):

UNEMPLOYMENT IN THE OECD SINCE THE 1960s. WHAT DO WE KNOW?

"This paper presents an empirical analysis of unemployment patterns in the OECD countries
from the 1960s to the 1990s. Our results indicate the following. First, broad movements in
unemployment across the OECD can be explained by shifts in labour market institutions.
Second, interactions between average values of these institutions and shocks make no significant
additional contribution to our understanding of OECD unemployment changes."

http://short.ie/4onsgw

Also, Brendan Walsh in his paper "Cyclical and Structural Influences on Irish Unemployment" (Oxford Economic Papers, 2000) describes the massive reduction in Irish unemployment over the course of the 1990's. Competitiveness, the generosity of the social welfare system and the wage bargaining process are all discussed.

These two papers could make for a good journal club.

http://short.ie/rfuvzr