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.
Most domestically traded market service sectors have lost employment, at roughly the same rate at which total employment fell nationally. This continues a well established pattern, which I have described in papers such as this.
- Employment in wholesale and retail fell by 4,100, with its share of all employment rising just a smidgen, from 14.3% to 14.4%.
- Employment in professional, scientific and technical activities fell by 2,500, maintaining its 5.3% share of all employment.
- Employment in administrative and support service activities fell by 400, maintaining its 3.4% share of employment.
- Employment in Other NACE activities fell by 1,500, maintaining its 5.1% share.
Labour force participation actually rose a shade during the quarter, reversing quite a steep downward trend that had previously been moderating the rate of increase in unemployment.
So with the main drivers of rising unemployment continuing to push forward at full throttle, and with the slight braking imposed by falling labour market participation removed for the moment, what on earth can be causing the rate of increase in the unemployment rate to slow? And why has labour force participation stopped falling, for the moment at least, when it usually falls in tough economic times as jobseekers become discouraged, and where one earner in a two earner family loses their job and decides to ditch the childcare and rely on one income?
Based on the QNHS data, increasing net outward emigration is making a contribution. While the population aged 15+ continued to rise through Q1 2009, it was effectively stalled in Q2, indicating that the full natural increase was being dissipated through net outward migration. But this just meant that population growth was not making matters worse.
More significantly, employment actually increased in a bunch of sectors where one might reasonably have anticipated that it would have fallen.
Part of this effect was concentrated in sectors dominated by public sector employment.
- Employment in human health and social work activities increased by 5,500.
- Employment in public administration and defense increased by 1,000.
- Employment in education fell by 1,400, but the fall was small enough so that education’s share of all employment still rose a little.
The overall share of employment accounted for by these three sectors rose to 24.9%, rocketing up from 24.2% of all employment in Q1 2009, and well up from 20.7% in Q1 2004.
Other sectors in which parallel developments occured were:
- Employment in financial, insurance and real estate services rose by 2,900, in the midst of one of the greatest crises that have ever faced financial services in Ireland, bringing its share of all employment from 5.3% to 5.6%.
- Employment in accomodation and food service rose by 1,400, also in the midst of one of the greatest crises that has ever afflicted the industry, where in the past it has tended to track overall employment in the economy.
- And employment in transport and storage also rose, by 1,100, again in the midst of a great crisis, and where again it has tracked overall employment in the past.
Better job opportunities arising from these developments may be behind the quarterly rise in labour market participation.
I don’t know what went into the models behind other projections of employment heading towards 17%, but mine assumed that employment in domestically traded market services sectors would change (fall under current circumstances) in proportion to total employment in the economy, as it generally has in the past. It also assumed that employment in sectors dominated by the public sector would fall on the basis of constraints on public sector employment announced by the Government. Falling employment in both these areas would have a second round multiplier effect on employment on employment in domestically traded services, driving total employment down even further. Clearly, unless there have been major sampling problems with the Q2 2009 QNHS, these assumptions have turned out to be incorrect.
In searching for an explanation, the common thread I see is that the State has a major influence on employment in all these sectors, whether directly or indirectly. The State is directly responsible for the majority of employment in in human health and social work activities, public administration and defense and education. It must also be having a major impact on employment in financial services, with the domestic banking system being propped up by public funds, with few if any reports of Irish banks moving to bring employment levels in line with their current needs, and with the resulting elevated employment costs arguably being absorbed in the public support for the institutions concerned. In transport and storage, some of the biggest employers are in the public sector.
In accomodation and food service, it is reported widely that many hotels that cannot cover their costs are being kept open, with staff, to satisfy the requirements of tax incentive schemes that financed them. Even if there is no new public subsidy involved, maintenance of the terms of these schemes is a matter of controversial public policy choice.
All in all, while one would clearly wish to look more widely than labour statistics for evidence, the QNHS Q2 2009 data seem to point towards employment funded directly and indirectly by the taxpayer, or effectively mandated by the State, as being central to the slowdown in growth in unemployment. There is some support for this perspective in the Quarterly National Accounts for Q2 2009, which show real spending on public administration and defense rising by 2.2% on the quarter, rather than falling.
Perhaps there is a rather subtle Irish stimulus package in place after all. It will be disappointing if it turns out that the wider evidence of stabilisation in the economy is built only on such a narrow base.
Roll on the eventual release of Q3 data.
addendum 30/9/09
With today’s release of CSO data showing the rise in the standardised unemployment rate to have stalled, I have been reflecting more on the above. As falling employment in construction, compounded by its multiplier effect on the rest of the economy, has been the dominant factor driving unemployment upwards, it seems reasonable to speculate that the rate of decline in construction employment may have moderated significantly in Q3. This could be partly a matter of hitting approaching natural limits (8% of all employment now, 5% to 6% during the ’80s) and/or the result of a boost to public spending on construction.
Tags: Ireland, Labour Market, unemployment
September 30, 2009 at 2:10 pm |
Con, you have correctly spotted something which has rather escaped peoples’ notice, namely that (non-debt-service) public spending is still rising in nominal terms, and more so in real terms.
But the fall in private sector employment continued in Q2 and may have continued in Q3. There was net outward migration of maybe 7K per quarter or so (sa) in the adult pop in the three quarters to Q2, and that too may be continuing, to the benefit of the LR figs. We must remember also that LR contains short-time workers and others not in labour force, and has been exceeding QNHS unemployment by c. 150K recently.
Some of the forecasts of both unemployment and emigration have been OTT, but we are not out of the wood until we see private sector employment stabilise – no sign of that yet. Private sector employment is the labour market stat to watch IMO.
September 30, 2009 at 4:11 pm |
Colm, honoured that the first publishable response to my blog is from your good self. I agree on the importance of private sector employment as an indicator. I also have a fondness for data on employment in exporting sectors, and more broadly on sectors in which government spending plays a very limited role.