The War on Unemployment

Last week's ESRI Labour Market Conference is summarised on the ESRI website here. The slides of all the presentations are available here. This makes for essential reading given ESRI forecasts that the unemployment rate this year is expected to average 13 percent, and in 2010 to rise to over 16 percent.

The first presentation by David Grubb (OECD) mentioned that when generous unemployment benefits exist, activation measures for unemployed individuals may be required. He contrasted the unemployment rates of recent years in Finland and Japan. Finland had much higher rates of unemployment than Japan the last time recesion hit, but it should also be noted that Finland has more generous unemployment benefits on offer. Grubb used this comparison to emphasise that labour market characteristics are important; and that we should not just be concerned about demand shocks. He also mentioned that work programmes are strategic i.e. it may be too expensive to put everyone on a work programme but that the existence of such programmes can act as a deterrent to disengaging from job search. Finally, Grubb advised that we should be ready for the time when unemployment starts falling. Activation policies should be in place so that we can push unemployment down further as it is falling.

Philip O'Connell asked what worked in the 1990's? The focus here was on how to avoid prolonged unemployment after recovery, so this was in the same vein as Grubb. O'Connell noted that we are entering a "male" unemployment problem (see Gerard O'Neill on Man-cession here), and that it is not a characteristically "middle-class" phenomenon, when looking at the QHNS between 2006 and 2008. The educational profile of unemployed males has evolved such that the biggest increases in unemployment for males occur for those with Leaving Certificate and PLC qualifications. On the other hand, the educational profile of unemployed females has evolved such that the biggest increases in unemployment for females occur for those with third-level qualifications. O'Connell noted that there is a higher educational profile of unemployed individuals compared to the 1990's, but as it was then, Junior Certificate holders and PLC graduates are most at risk now.

O'Connell also talked about job-training programmes, or active labour market programmes (ALMP'S), which is the broader term used in the international literature. In terms of what makes for an effective programme, O'Connell emphasised the impotance of minimizing deadweight, that is, the percentage who would have found a job without intervention. Out of different types of ALMP that can be used, O'Connell mentioned that:
(i) job search assistance is effective for many groups and is low cost
(ii) there is inconclusive evidence on formal training
(iii) some employment subsidies help long-term unemployed
(iv) there is little evidence of any positive effect from public sector job creation
O'Connell emphasised the mantra that 'prevention is better than cure' and that we should also strive to keep jobs rather than just making new ones. Despite this, there are challenges though. The unemployment rate of those who left school early in 2005 was 45% in 2006. In 2006, 1 in 5 males were working in the construction sector. O'Connell emphasised that the most effective education, training and employment programmes are those linked closely to labour market demand.

Jaakko Kiander (Director, Labour Institute for Economic Research, Helsinki) noted that the Finnish crisis in the 1990's was solved by currency devaluation. He noted that for countries within the Eurozone, deflation appears to be the only viable alternative, but that the adjustment process is slow and painful. A presecriptive emphasis on cost-cutting (particularly in wages), balancing of govt. finances and restoration of competitiveness featured prominently at the UCD School of Economics/Dublin Economics Workshop conference on 'Responding to the Crisis'. (Discussions about financial regulation and the property bubble also featured on that programme.)

Returning to direct labour market issues, Alan Barrett discussed "What Do Migrants Do in A Recession?". He firstly noted that immigrants have never been "over-represented" (compared to the Irish distribution) in the construction sector, but they have been more respresented in the hotel trade. In Q1 2008, 16.5% of the total number employed were non-Irish nationals. He also mentioned that Barrett and McCarthy (2007) documented an immigrant earnings disadvantage of 18%, relative to comparable natives, on average. There is no disadvantage for English speaking immigrants, so it seems there is an earnings premium to speaking the tongue of the host country. Finally, for background, Ireland absorbed a lot of inflow from accession states since 2004, and 20% of accession state immigrants are less likely to be in higher-skilled jobs. Barrett concludes that immigrants appear to be suffering a higher rate of job loss relative to natives and that a significant proportion appear to be reacting to job losses by staying here.

Philip O'Connell and Seamus McGuinness concluded the conference with a paper on profiling the unemployed. They suggested that profiling is the first part of a successful intervention, with targeted intervention being the second part of the process. In Q4 2006, benefit recipients in the Northwestern region were given a questionanire and subsequently tracked for 18 months. The research is essentially concerned with the following questions:
(i) Who is likely to stay on the Live Register?
(ii) Who is likely to leave the Live Register?
Factors surrounding labour mobility, transport, health, education and labour market history show up in the results. O'Connell and McGuinness emphasised that this work is a pilot-test; and also that profiling does not have to mean that somebody who is not targeted will not be allowed onto a programme.