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8/2/2019 Don Thornhill EGFSN Presentation 25
1/26
Economic Context for Skills DevelopmentOverview of Irelands Competitiveness
Don Thornhill, Chair
National Competitiveness Council
National Skills Conference26 October 2006
8/2/2019 Don Thornhill EGFSN Presentation 25
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What is Competitiveness?
National competitiveness refers to the ability of firms basedin Ireland to trade in global markets.
Competitiveness is partly about costs, prices and wages
but more about better business performance throughinnovation and productivity
Competitiveness remains a foundation for nationaleconomic and social progress
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Irelands International Competitiveness Rankings
Where does We Stand Internationally?
Source: WEF & IMD
0
5
10
15
20
25
30
35
2000 2001 2002 2003 2004 2005 2006
WEF IMD
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Irelands Strengths
Ireland continues to attract high levels of overseas investment Competitive personal and corporate tax rates
Strong labour force growth, reflecting both natural growthand immigration
Improving school completion and third level participation
rates Relatively low levels of regulationbut perceived to be
increasing
High rates of entrepreneurship
High levels of public investment Productivity levels in modern, export-orientedmanufacturing and services sectors are high by globalstandards
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Strong Labour Force Growth
1000
1200
1400
1600
1800
2000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Employment Short Term Unemployment Long Term Unemployment
Thousands of persons Source: QHNS, CSO
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Net Migration per 1,000 of Population, 1995-2004
4.3
-0.2
1.8
3.1
-0.2
0.5
9.4
-0.5
4.2 4.1
-1.0
0.7
-2
0
2
4
6
8
10
Ireland Northern Ireland EU 15 US NEU 10 Japan
Migrantsper1,0
00
ofpopulation
1995-1999 2000-2004
Source: International Migration Outlook 2006, OECD
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% of the Population Aged 20 to 24 having Completed
at Least Upper Secondary Education (2005)
61.3%
71.0%
72.9%
74.1%
74.6%
76.0%
77.1%
82.8%
83.3%
84.8%
86.1%
87.8%
90.0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Spain
Germany
Italy
EU 15
Netherlands
Denmark
UK
France
Hungary
Finland
Ireland
Sweden
Poland
Lisbon
Target
85%
Source: Structural Indicators, Eurostat
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Population by Age Cohort that has at Least
Third Level Education, 2003
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
EU 15
Ireland
UK
OECD
US
25-34
35-44
45-54
55-64
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Irelands Weaknesses
Irelands international trade performance is weakening Ireland is losing employment in manufacturingover 32,000 job
losses since 2000
Too few Irish start-ups develop real scale
Erosion of Irelands cost competitiveness
Poor (but improving) infrastructure - road, air, seaports, waste andenergy
Low levels of domestic competition and productivity in manydomestically trading sectors
Average national educational performance
Dual labour force and low levels of engagement in life long learning Young and undifferentiated R&D system
Not maximising the potential of ICT
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Irelands Share in World Merchandise and
Services Trade, 1993-2005
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Services Merchandise
Source: WTO
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Erosion of Irelands Cost Competitiveness
Labour Cost Growth Rate, 2000-2005
79.0%
55.3%
42.0%
29.6%
26.4%
24.4%
23.8%
23.4%
22.5%
22.1%
18.4%
15.1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Hungary
Czech Republic
Poland
Ireland (Q2 2005)
France
EU 25
Austria
Euro-zone
UK
Sweden
Denmark
Germany
Growth in Labour Costs, 2000-2005
Source: General and Regional Indicators,2006, Eurostat
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Not Maximising the Potential of ICT
Computers per 10 Students (mean), 2003
0.7
0.70.8
0.8
1.1
1.3
1.4
1.6
1.7
1.91.9
2
2.2
2.3
2.3
2.3
2.7
3
0 0.5 1 1.5 2 2.5 3 3.5
Poland
PortugalGermany
Spain
Ireland
Italy
Netherlands
Sweden
Finland
DenmarkJapan
OECD
Austria
Hungary
New Zealand
UK
Korea
US
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Current Assessment of Competitiveness
Using GDP and GNP growth figures, Ireland is still competitive However, growth since 2000 has changed in nature and it does not
necessarily reflect improved international competitiveness
Domestic demand is driving growth, driven:
rising national confidence,
high rates of borrowing,
low interest rates,
a shift towards services, and
greater international competition.
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Dominance of Domestic Demand
-2%
0%
2%
4%
6%
8%
10%
1990-95 1995-2000 2001 2002 2003 2004 2005e
Government Consumption Investment Net Exports
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Grounds for Concern
1. Loss of internationally trading businesses Ireland share of world markets in decline, particularly in manufacturing
Current account deficit is growingIrish residents are spending more thanthey earn
Loss of 32,000 manufacturing jobs since 2000replaced by jobs in
construction and the public sector
2. Irelands debt burden
Ireland has very high levels of household indebtedness
And Irelands indebtedness continues to grow rapidly
while interest rates are increasing
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0%
20%
40%
60%
80%
100%
120%
Italy
Greece
Belgium
France
Austria
Finland
Euroarea
Portuga
l
Spain
German
y
Ireland(GDP
)
Netherland
s
Ireland(GNP
)
2003 2004 2005 2006f
Grounds for ConcernHousehold Debt
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Grounds for ConcernConstruction
3. Dependence on the construction sector
By the end of 2005, over 13 per cent of Irelands employment was accounted
for by the construction sectorhigher than any other OECD country and over
twice the rates of the USA and Germany.
As Irelands housing needs and infrastructural deficit are addressed,
constructions exceptionally high share of economic activity and employment
can hardly be sustained.
Are these skills transferable?
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4. Costs Ireland has experienced a loss of international price
competitiveness, reflecting both higher inflation and a worseningof our trade-weighted exchange rate
Consumer prices: Ireland is both an expensive country and one
where prices continue to rise faster than in most other EUcountries
Labour costs, largest cost category for business: costs havegrown at faster rates than experienced in other euro-zoneeconomies
Non-labour costs: NCC research highlights the relatively highcost of property and utilities, including electricity, mobilecommunications, and waste disposal in Ireland
Grounds for ConcernBusiness Costs
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Grounds for ConcernExternal Risks
Long run economic growth depends on success in exportsmarkets
Over time, the Irish economy must shift back from the currentdomestic driven phase of economic growth towards export-ledgrowth
Also need to be aware of external risks, such as: Further rises in oil and energy prices
House price volatility throughout the OECD
A further weakening of the dollar, which would affect the costcompetitiveness of Irish exporters
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Five Key Policy Challenges: Productivity
1. Need for enhanced productivity growth across all
sectors of the economy
Productivity growth has slowed considerably in
recent years Investment required in all levels of education system
Investment in infrastructure - including broadband
Cost reduction
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Five Key Policy Challenges: Competition
2. Promotion of competition
Costs of doing business in Ireland high, particularly
for utilities, communications, property and key
professional services
Nationallyremoval of government and sectoral
restrictions on competition
Internationallypromotion of free trade and workwith others to get Doha back on the rails
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Five Key Policy Challenges: Tax System
3. Securing the competitiveness of the tax system
International trends in relation to tax have changed
Irelands model is being adopted elsewhere Broadening of the tax base
Efficiency of public services
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Five Key Policy Challenges: Innovation
4. Improving the capabilities of our companies to
move up the value chain
Pursue with relentless determination theimplementation of the strategy for science,
technology and innovation, and initiatives to
enhance management capabilities
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Five Key Policy Challenges: Skills
5. Meeting Future Skills Needs: Globalisation and ICT
Fears around outsourcing and automation
But not all jobs can be outsourced, and ICT both substitutes
and complements human skills
Growing demand for skills that require expert thinking and
complex communications
Evidence (Levy et al) suggest a hollowing out of moderately
skilled jobs that are routine in nature and rule based
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Five Key Policy Challenges: Skills
5. Meeting Future Skills Needs: Implications for EducationNeed to retrain existing workers at risk
Need for strong basic skills and competencies
Basic competencies needed to develop more advanced skills
Quality and effectiveness of the teaching of maths and sciencenewstrategies?
Need for advanced skills
Need for attention to problem solving and interpersonal skills
Understanding and rote learning
Implications for teaching resources and the format of examinations?
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Conclusions
Irelands national competitiveness has been central
to Irelands success
Ireland needs to recover some its lost export
competitiveness
a skilled, adaptable and knowledge intensive
workforce is essential