During my childhood in 1980s Ireland, one of the highlights of the school year was the arrival of the Spraoi Christmas Annual. Among the many life skills it taught were ‘join the dots’ and ‘spot the difference’.
Just like Spraoi it makes use of colour, this time to show Ireland’s economic problems. We have two structural reform gaps marked red, infrastructure and network regulation. Given our lack of investment in such things as broadband this is perhaps unsurprising. When it comes to labour market inefficiency we get a green light, the IMF don’t see that as a major problem.
This would suggest to me that Ireland’s labour market regulation (such as the minimum wage) does not cause a problem, but we should probably invest in infrastructure. This would also create jobs and reduce future problems of long term unemployment. On page 22 the IMF report suggests we need to
“Raise employment to avoid persistence of current high unemployment rate; and
Improve competitiveness to promote exports as a sustainable source of growth”.
Yes, they seem to have mastered joining the dots. Our infrastructure deficit and network regulation doesn’t help our competitiveness position.
However, the specific measures they suggest are as follows.
To promote employment labour market:
- Introduce gradual decrease of benefits over time of unemployment spell and stricter job search requirements
- Provide more resources to the unemployment agencies (FÁS) to provide efficient job search assistance to the growing number of unemployed
- Review the level of minimum wage to make it consistent with the general fall in wages
And to improve competitiveness:
- Reform planning and licensing systems in network industries, so as to increase competition in sheltered services sectors
- Focus public resources on high-priority projects in the knowledge-based economy
So, no plans for infrastructural investment. We just get supply side solutions for demand side problems. Have the IMF learned how to spot the difference?
Rory O'Farrell is an economist lecturing in TU Dublin. He previously worked for the OECD and for NERI.