Skills in Creativity, Design & Innovation

The Expert Group on Future Skills Needs has published its report on Skills in Creativity, Design and Innovation, with which I had some professional involvement.

A Labour Market View on the Competitiveness Question

There’s a recurring question as to how best to articulate the character of the competitiveness bind that Ireland now finds itself in. There’s no doubt in my mind that it is real, but it is also the case that some reasonable people with no axe to grind in the matter either doubt it or would at least like to see a much clearer articulation of the matter before they make up their minds.

It is possible to go around in circles indefinitely looking at competitiveness at the level of its individual components. It is true that there is much more to competitiveness than costs. It is true that Irish labour costs actually compare reasonably well with those of some other regions within the EU. But it is also true that we are already pursuing non-cost aspects of competitivess vigorously, and it’s turning out clearly not to be enough.

There are probably any number of ways to illustrate this, but I have spent a lot of my career looking at policy from a skills and labour market perspective, so I’m drawn to taking a labour market perspective.

As a small open economy, Ireland imports a large share of the goods and services it needs. Over the longer term, these are paid for mainly through the earnings of those working in exporting industries and their subsuppliers and service providers. The value of exports, and even the value added in exports, are misleading indicators because much of the value leaves the country directly through paying for inputs or through repatriation of profits and royalties.

So it is interesting to look at the number of people whose imports each person working in exporting industry pays for. For the sake of simplicity I’ll leave agriculture to one side, as most of the net value it adds to the economy is through transfers from the EU rather than market returns on production.

Data on employment at clients of the industrial development agencies provides a good approximation for employment in exporting industries. This is published annually in the Forfás Employment Survey.

The chart below looks at the ratios between three variables and employment in exporting industries, as measured by the total employment found in this survey.

Ratios to Traded Industry Employment

Varying Trends in Development Land Values in the US

With all the discussion on the value of Irish development land going on currently, I thought it would be interesting to look at what has happened to land values in the US during the current downturn. The degree of variation between regional markets may be useful in giving a feel for what is “normal” in the context of current tough times.

The chart below draws on city level data on 46 major US cities which distinguishes between land value and “structure cost” of residential properties. While it refers to buildings that are already in existence, the land value component should give a reasonable degree of guidance as to trends in the the value of undeveloped land suitable for development in those cities.

Are we deleveraging?

I thought it might be interesting to take a look at whether the Irish population is deleveraging. After binging on debt through the years of the property bubble, are we now (Government aside) making any progress on dissipating the accumulated burden? And if we are making progress, are we moving fast enough to offset the negative inflation that is increasing the real value of money in Ireland?

The chart below uses ECB data to track trends in lending to consumers by Irish Monetary Financial Institutions (MFIs), both in nominal terms and discounted by the CPI to track the real value of outstanding lending. The chart runs up to August 2009. I am assuming that the jump in consumer credit numbers between Dec 2008 and Jan 2009 reflects a discontinuity in the data, rather than a real month-on-month jump in excess of €5bn.

Share of employment in State-dominated sectors rising rapidly

I thought it would be interesting to focus in on the main State-dominated sectors of employment, as a follow up to my last post. That’s public administration & defence, health & welfare and education. As of Q2, they are just a shade short of accounting for 25% of all employment in the country, rising rapidly.

Share of All Employment in Ireland Accounted for by State-Dominated Sectors

Data from CSO, QNHS

Why is the Rate of Increase in the Unemployment Rate Stalling?

Until recently, mainstream economic commentators were suggesting that unemployment was heading for around 17%. My own take on the numbers suggested that this was about right. But the rate at which the unemployment rate is increasing has slowed sharply. Having peaked at 0.8% per month, it was down to 0.4% as of mid-Q2, and is most recently down to 0.2% in August (reaching 12.4% unemployed). What has gone right with the world, and wrong with the forecasters?

The Q2 2009 Quarterly National Household Survey tells an interesting story. Here is chart summarising how the population aged 15+ is occupied, and how this has changed since 2004.

Note that the data used in this chart, and quoted here, are seasonally adjusted, where some QNHS data that you may see elsewhere are not seasonally adjusted.

The sectors that have led the economy downwards, and their employees, have continued to have a very rough time, much as expected by myself, and I would imagine by others making projections.
- Construction lost 23,500 jobs in the quarter. Now at 158,000, or 8.1% of the working population, it can’t keep up this pace of decline much longer.
- Industry (manufacturing, power generation etc.) lost 7,600 jobs.
- Evidence of trouble in employment in agriculture, forestry and fisheries has turned out to be real, with employment falling another 4,300, to bring it below 100,000 for the first time ever.

Married female labour market participation and residential property prices

Digging around data on residential property prices, I have been struck by the extent to which they are driven by patterns of working. Household income (rather than individual income) seems to be accepted as the preferred basis for understanding residential property affordability. And household income is influenced heavily by the the number of members of the household who are working. To the extent that residential property prices are determined by what is affordable, therefore, any substantial changes in numbers in employment per household, should be factored into any explanation of trends in house prices.

There is currently considerable controversy over the prices likely to be paid by the National Asset Management Agency (NAMA) for bank loans secured on properties. Calculations of a long term economic value (LTEV)for these loans will contribute to decisions about prices to be paid. And it seems that information on historical trends in property prices will inform the LTEV calculations. If what I have read is correct, these trends are being calculated from data for the period 1970 to 2000, the thirty years argued to be immediately prior to the start of the residential property bubble.

Economic impact of publicly funded research

There has been a lot of discussion in the recent past as to whether Ireland is getting good value for its investment of public funds in research. I’m not going to try to answer that here, but I am going to talk about how we should think about measuring the return we get on investment in research, because it’s a not a straightforward job. An evaluation of public investment in research anywhere in the world that focused only on the most obvious and easily measured outputs would find, in most cases, that in excess of 90% of investment was lost.

Only a small minority of US universities recover as much as 10% of what they spend on research through licensing their intellectual property to existing companies and start-ups, and most of the best known research universities fall below this level. While the income that universities earn through commercialisation gets a lot of policy attention, its true importance lies in the behaviour it incentivises, rather than in the trivial average direct return on investment that it provides at most universities.

So what do we get of economic value from publicly funded university research, other than a financial return to universities on the intellectual property they generate? I would pick out the following ways in which research benefits industry, emphatically not in order of significance.

It’s not just public versus private, it’s traded versus non-traded

With all the fuss this year about public versus private sector pay, it is surprising how little attention has been given to other respects in which pay developments in the economy have diverged between sectors. A key issue is that pay in manufacturing and software/IT-related services, which dominate Irish exports, has fallen behind that in most protected sectors of the economy. The people we rely upon to bring home the national bacon through exporting went from being comparatively well paid in the late 1990s, to being also-rans in the remuneration stakes.

Indexed to Q1 1998, the chart below looks at how real average weekly pay has changed for a range of sectors. In manufacturing it looks separately at industrial and managerial (managers/administrative/technical) workers because the composition of the workforce has changed quite radically over the period, flattering all-employee average numbers on trends in pay for the sector. (I have omitted the clerical worker category to limit data overload.)

I believe that 1998 provides as good a point of reference as any, because it was a time when people were excited about working in exporting industry, but when the fruits of the Celtic Tiger boom had already made good progress in trickling down to traditionally poorly paid services sectors. It is a couple of years before the peak of the Celtic Tiger exporting boom, and coincides with the early stirrings of the construction bubble.  

Some hastily thrown together data on the economic impact of R&D

There’s a meme doing the rounds at the moment that the positive economic impact of R&D is unproven. Having knocked around the territory a bit, I don’t buy the meme. But it is true that there are problems tracing the economic impacts quantitatively, and this is because they manifest themselves in complex ways.

The easy-to-measure direct return on public investment in R&D through licensing intellectual property to start-ups and established firms accounts for only a small part of its total economic impact.

Another way to look at the topic is at a more macro level. When one picks through the data, it turns out that there is quite a strong correlation between the R&D intensity of an economy and growth in labour productivity. Here’s a hastily-thrown-together chart based on OECD data that I think demonstrates this adequately. I’ve left countries playing serious labour productivity catch-up (central European, Turkey, Greece, Mexico etc.) out of the chart as they confuse the picture.

Arguably, Ireland, Iceland and Korea were still playing productivity catch-up to some extent over this period, and if they are excluded the data are clustered more tightly around a line.