Ministers are fond of telling us that we are 80 percent through the dark austerity forest. Soon, maybe within a couple of years, we will enter into the light where all will be well and normal fiscal policy can be resumed. Just one more push and austerity will be no more. Should we put a lot of faith in this? I would recommend caution – extreme caution.
The Government has published a long-term scenario – stretching out to 2019. This builds on the projections up to 2016 in the recent Stability Programme Update. The Government is at pains to state that this is an illustration:
‘Again it must be stressed that this is purely an illustrative scenario.’
They even underlined it. Yet, it is consistent with the Government’s SPU projections and it is certainly consistent with reports of a new plan being developed by the Minister for Finance.
‘The State’s anticipated exit from the bailout this year will not mean a relaxing of austerity targets as Mr Noonan hopes Government will approve a fresh regime with firm timelines similar to the EU-IMF-ECB programme.’
Minister Richard Bruton was also giving a warning
‘Mr Bruton rejected the accusation that the public had expected the end of the bailout term would signal an easing of austerity by saying no “crock of gold” was available to the Government.’
Mr Bruton suggested that this situation would continue for some time.
So it is worthwhile to look at the Government’s ‘purely illustrative scenario’ as there is a very good chance it will morph into the ‘only scenario’ (TINA will become TIOOS – There is Only One Scenario). Let’s look at primary public expenditure – that is, public expenditure excluding interest. This identifies how much money will be spent on public services, social protection and investment. I have used ‘real’ expenditure – that is, expenditure after inflation using the GDP deflator (the economy wide inflation indicator).
As seen, primary expenditure is expected to fall by nearly 9 percent over the next two years. From 2015 on, primary spending still continues to fall – by 2.6 percent in real terms up to 2019 despite the Government pencilling in GDP growth of approximately 12 percent during this same period.
But it gets worse. In many areas public spending will rise automatically due to demographic pressures. For instance, the number of pensioners will increase so that even if pension payments remain frozen, expenditure will rise. We should also allow for a rise in demand on health services with this aging demographic. And in education, we will have to spend more just to accommodate the continuing rise in our student numbers.
In other words, we will have to spend more on pensions, health and education just to stand still. When this is factored in, there will need to be additional cuts in other expenditure – in other public services, social protection programmes and investment projects.
We are heading into a period of semi-permanent austerity. Why, if by 2015 we have reached the Maastricht target and when employment and economic growth will continue to reduce deficit and debt levels? The Government gives two clues. First:
‘Ireland is on track to correct its excessive deficit by 2015. Thereafter, the public finances in Ireland will no longer be subject to the corrective arm of the Stability and Growth Pact (i.e. the Maastricht guidelines) but subject to the requirements of the preventive arm and the Treaty on Stability, Co-ordination and Governance (the ‘fiscal compact’).’
Ah, the Fiscal Treaty; remember those debates – how Government ministers insisted that compliance with the pact would not necessitate further austerity? We climb one hill only to find there are more hills to climb.
Second, the Government seems determined to drive the budget balance down to zero and then into surplus. In other words, we will be taking in more money than we are spending by 2019. Now there’s nothing wrong with a balanced budget at the appropriate time. But the Government’s scenario estimates (and to be clear, this is not a projection) that unemployment will be 11 percent. How could anyone imagine any scenario where you run a budget surplus with double-digit unemployment?
Is a balanced budget necessary to reduce debt per the fiscal treaty? No – this is an issue we will revisit in a subsequent post.
This is the future that some Government Ministers are planning. After destroying our social and economic infrastructure with irrational austerity policies, what is next? Continuing austerity amidst the ruins.
That’s the current scenario – unless we work for something different; different than what has happened in the past, and different than what is being planned for us in the future.
Unemployment falling to 13.7 percent. Employment increasing by 20,000. THe CSO’s new Quarterly National Houshould Survey should be good news. So why isn’t it? When we dig a little under the numbers, what do the numbers tell us about the kind of economy that is emerging? Why should we be concerned?
First, let’s run the headline numbers.
On the face of it, these are positive numbers: employment up by 20,000 over last year – returning to the level of employment in 2011 while unemployment has fallen by well over 1 percent. But now, let’s look at some numbers below this headline.
(a) The Rise of the Precarious Work
Probably the most disturbing aspect of the CSO release is the rise in precarious work. This can be seen in the rise in under-employment.
The economy is still shedding full-time jobs. In the last year, the numbers working full-time fell by 6,000. The difference was largely made up by an increase of 17,000 in precarious work (a 12 percent increase) – people working part-time but wanting more work.
Some might argue that when the economy is on the floor, the first work available will be part-time and that this will turn into full-time work once recovery sets in. Let’s hope so but there are grounds for questioning whether this is part of a normal post-recession pattern or a more qualitative change in the nature of work.
Precarious work is part of an employer strategy to minimise costs. Courtesy of the Government’s policy to cut employers’ PRSI on low-paid work, employers are offering part-time jobs to cut their PRSI bill. They may have full-time work available but they are breaking them up. This ultimately costs the State through part-time unemployment supplement, lost tax revenue, higher Family Income Supplement costs. But it also costs employees: over one million people suffer multiple deprivation experiences in the state. Of this, approximately half live in households where there is at least one income from work. No doubt, this is concentrated in the low-paid precarious sectors.
It is also a policy to discipline employees. If you are depending on getting extra hours you don’t want to go around trying to organise your work-mates into a union, or complaining about working conditions, etc. The employee must keep quiet, suffer anything the employer throws at them, all in the hope that they will more hours on the next roster assignment. The Government could end this by implementing the EU Directive on Part-time work – which would give part-time employees the right to any extra hours in a firm when it becomes available – but so far they haven’t indicated any willingness to do so.
So there is a very real possibility that we may be entering into a period where precarious work becomes the norm and not just a feature of a weak labour market.
(b) The Weakness of the Market Employment
Over the last year agricultural, fishing and forestry employment increased by 16,000. This is a good performance for this sector. But are we getting a true picture? The CSO has recently starting re-adjusting their samples to align them with the 2011 census. This will be phased in over the year. In the meantime they provide a caution about interpreting trends in this sector. In the survey for the last quarter they state:
‘In the case of the Agriculture, forestry and fishing sector it can be noted that estimates of employment in this sector have shown to be sensitive to sample changes over time. Given the introduction of the sample based on the 2011Census of Population . . . particular caution is warranted in the interpretation of the trend in this sector at this time.’
So we have to be careful about this 16,000 job improvement. We may find that previous estimates of employment in this sector in the past were under-stated and, so, the total level of employment in the economy.
So how can we look at this. The following breaks down employment in three sectors: agricultural/fishing/forestry, the market economy and the non-market economy. The non-market economy includes public administration, education, health and other sectors (recreation leisure) – these are dominated by public sector employment.
Nearly 2,000 jobs were lost in the market economy, an improvement on the 2011-2012 figure which showed a loss of 8,000. We have, though, still to bottom out in this sector which employs 63 percent of the labour force and is the driver of value-added and exports.
Just to note, the increase in non-market employment is not related to the public sector which has been losing jobs. There was, however, an increase of 8,000 in the health & social work sector – driven by the private sector.
(c) Increase Due to Rise in Self-Employed
The employment rise in the last year has been almost entirely due to an increase in self-employment.
As seen, while employment rose by 20,000 in the last year, this was due to the rise in self-employment – which made up 16,000 (there was another small increase in assisting relatives of 2,700).
Of course, this increase in self-employment is to be welcomed (better than a decline). But the question here is how long-term this work will be and to what extent the numbers have been impacted by the CSO’s sampling adjustments. Many, believing they won’t find work, will try their hand at own-work. This can be tenuous and low-income with an eventual high-failure rate. One insight is that the number of self-employed who, in turn employ people, actually fell over the last year by over 3,000. This was made up by a bigger increase in the numbers of self-employed without employees.
Meanwhile, PAYE employment has stagnated over last year – recording an increase of only 4,000; still, better than a decline. However, when we strip out the numbers on Government schemes (Community Employment, Jobsbridge, etc.) the number of non-scheme employment rose by only increased by 1,700.
* * *
So what do we have? We have some good headline news but much of this melts away when examining the details.
Full-time employment is still falling
Employment in the market economy is falling
Precarious work is on the increase – substantially so
The number of employees remains much the same as last year – especially when those on Government schemes are taken into account.
The main growth has been in the self-employed sector – but not in that part of the sector which employs people; that’s still falling
Some of the increase might be due to statistical factors unrelated to what is actually happening the economy.
Then there’s the question of emigration. With the labour force actually falling by over 9,000 (despite new entrants from education), much of the decline in the unemployed numbers will no doubt be due to people searching for work elsewhere.
This is not a good news story. At best, it’s mixed. And to the extent that it presages permanent changes in the labour market – namely, the rise in precarious employment – it is depressing.
Three things all serious people know are true
This post was written by Kevin O’Rourke
A holy trinity — or perhaps a troika? — of beliefs has guided policy since 2010. These are that austerity is expansionary; that the sky will fall in if ever the debt to GDP ratio exceeds 90%; and that the way to do austerity is to cut expenditure rather than raise taxes.
All of which is very convenient if what you really want to do is shrink the state.
We know how well the first two nostrums have performed when confronted with empirical evidence, so you might think that people would be just a wee bit cautious about stating the third as gospel truth. But no, here is Mario Draghi:
First, fiscal consolidation should be based on reductions in current expenditure rather than increases in taxes. Unfortunately, many of the fiscal consolidation measures were implemented in an emergency situation, with most governments choosing the simplest route, which was to raise taxes. And here we are talking about raising taxes in an area of the world where taxes are already very high, so it is no wonder that this had a contractionary effect.
Paul Krugman helpfully reminds us where this belief came from, and what happened next. The ECB is constantly telling us that it has a narrowly restricted mandate, with its primary concern being inflation. In that case, then surely the least that we are entitled to expect is that it keeps its views about the composition of fiscal adjustments to itself?
The quite wonderful Gavin Kostick of Fishamble Theatre has a comment on Irish Economy which is too good to linger there… It’s super.
And Draghi came down from the mountain with two tablets of stone.
(1) Thou shall love the god of the market. Thou shall have no other god before it.
(2) Thou shall have no other engraved image except the Euro. There shall be no other image on thy coin, for I run a jealous central bank
(3) Thou shall not take the name of the Euro in vain or speak slightingly thereof, for those who seek to destroy confidence will not be held guiltless.
(4) Thou shall work all of the days, excepting none, for this is the will of the free market. And you shall remember that you are a debt slave as you once were in Egypt.
(5) Honour Germany and France and the contract they made in their betrothal at the altar of the European Coal and Steel Community: for these are your mother and father to whom you must be obedient.
(6) Thou shalt not kill the bondholders.
(7) Thou shalt not commit adultery with other nations, neither the Russians nor the Chinese, nor any other nation against which we set our face.
(8) Thou shalt not steal deposits with high interest, low tax or any other wiles against which we set our face.
(9) Thou shalt not falsely accuse the ECB of running a tyranny, or threatening to implode your banks, being subservient to German interest, nor any other false witness against them.
(10) Thou shalt not covet a living possessed by your neighbours, but rejoice in the purification of your impoverishment.