Unemployment, emigration and growth

Tom O'Connor09/11/2010

Tom O'Connor: The seasonally adjusted unemployment figures show a fall of 6,500 signing on the live register. This is totally due to emigration. In fact, it is highly likely that the figures would have risen and not fallen, were it not for the scale of emigration right now, which is now at its highest annual level in living memory.

In the year to last April, the CSO show that emigration stood at 65,300 and the net figure when we subtract the numbers entering the country was 34,500. These immigrants numbered 30,800, a very sharp fall.

Taking the first figure, 5,441 people per month up to last April were leaving the country presumably due to unemployment. Allowing for the outside possibility that 12,000 of the 30,800 immigrants were coming here to draw the dole, which the government would say is outside its control, the numbers leaving the live register due to emigration , up to April last, was 4,441 per month. Over that period, unemployment rose by 51,000 and would have risen thus to 104,292 were it not for emigration. This is in one year!

Now, if we look at the most recent ESRI predictions, things have gotten worse: In the year up to next April, they are predicting net migration to be 60,000 people. This means that the numbers leaving the country minus the numbers coming in will be 60,000 leaving.

If we take it that the numbers coming back will be a maximum of 30,000 per year up to next April, then this would indicate emigration of 90,000. Consequently, 7,500 people are leaving these shores every month at the moment.

Even if we adjust this figure downwards on the off chance that 12,000 of the 30,000 immigrants will come here to draw the dole, the numbers of people being removed from the live register due to net emigration stands at 6,500. This is exactly the same figure as the seasonally adjusted fall in unemployment for the month of October.

So there is no real drop in unemployment, and even with the illusion of a fall of 6,500, there are still 443,000 people on the live register. To make matters worse, were it not for emigration since April, this figure would now stand at 482,000, only 17,000 shy of a half a million people.

Ah, but the government will say that the public finances are stabilising. This is stretching the limits of credulity even further. The government paid €7 billion to the Anglo Irish Bank and the National Pension Reserve Fund last year, bringing the deficit to 25 billion. Netting out this 7 billion to compare last year’s deficit with this year where this 7 billion spending won’t occur, shows that the deficit will widen considerably at the end of this year.

The deficit net of Anglo/NPRF at the end of 2010 was €18 billion last year and it will be €22 billion at the end of this year. Consequently, the government will have saved 4.3 billion mostly by cutting services to those such as old people, children with special needs, community groups, home helps and social welfare recipients and it will have increased the deficit by 4 billion!

Of course the answer is to grow the economy and not deflate it. A whopping 15 billion of the 18 billion deficit last year was due to the fall in tax receipts from €48 to 33 billion from Dec 07 to Dec 09. This was due to unemployment which the government has done nothing about.

In this context, the Irish Congress of Trades Unions have made a very compelling observation this week, that it is the government’s inability to grow the economy and reduce unemployment that is causing the bond interest cost of government borrowing to rise.

The markets know the government is making no headway and the solution is to bring down unemployment. They can see the abject failure of government policy in this regard, which is driving down their confidence and driving up the cost of borrowing.

So, the endorsement by business groups of front loading cuts of 6 billion to reduce borrowing costs is based on the incorrect premise that the markets are looking for this deflationary course of action, when instead they would prefer to see a solution to unemployment and the deflationary cycle in order to grow the economy!
This would reduce unemployment, grow taxes and reduce the deficit alongside a move out of recession and markets know that this would be a far superior result to the current deflation and borrowing policies.

Consequently, the Irish Congress of Trade Unions has called for a wide ranging six billion fiscal stimulus to get the economy growing, reduce unemployment and thus reduce the deficit. This is something that I have been calling for since the summer of 2008 to halt the government’s suicide pact in driving the economy continuously down in to a debt-deflationary cycle.

The Nobel Prize winning economists, Joseph Stiglitz and Paul Krugman have also been advocating this approach and the latter has strongly criticised the failure of the Irish government not to stimulate the economy. TASC has also called for fiscal stimulus. The evidence is overwhelming. Government policy must be radically altered and fast. These are lessons for any alternative incoming government also.
This is a slightly edited version of an opinion piece published in yesterday's Irish Examiner

Posted in: Fiscal policyLabour marketInequality

Tagged with: fiscal stimulusTASCICTU

Dr Tom O'Connor     @justeconomics

O'Connor, Tom

Tom O’Connor is a lecturer in economics, public policy and health/social care at Cork Institute of Technology.



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