After the party’s over...

After the Party’s Over:

Ireland’s employment model and the

surprising survival of the welfare state

tasc lunchtime seminar

30 October 2014

James Wickham

Outline

The bubble labour market

Preconditions (‘Openings’)

Employment, debt, emigration and

welfare in the crisis

Conclusion

Goldrush labour markets

Definition of a bubble: Normal rules assumed to no longer apply (cf Patrick Honohan); ‘Boosterism’ (Belich, 2010)

Just as asset prices are assumed to rise indefinitely, employment growth is assumed to grow continuously

Boundless optimism: Everybody can win (or at least hope to win)

The business of the boom [bubble] is boom itself (Belich)

Casualisation of recruitment: ‘Hiring any one who shows up’

Bargain of convenience: mutual short-termism, mutual flexibility

De-institutionalisation: rules and regulations just get forgotten

De-territorialisation: employers face an apparently inexhaustible supply of labour

Quantitative expansion: little pressure for innovation

Boosterism

1920-29 1.7m settlers entered California...

‘Kill Pessimists, Bishop Advises’ Los Angeles newspaper headline, 1920s

(cited Belich, Replenishing the Earth: The settler revolution and the rise of

the Anglo-world, Oxford UP, 2009: 402)

And in Ireland...

People...‘cribbing and moaning...I don’t

know why people who engage in that

don’t commit suicide’ Bertie Ahern, July 2007.

Employment rates 1997-2008

Source: Employment in Europe 2009

50.0

55.0

60.0

65.0

70.0

75.0

80.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

EU27

Germany

France

Sweden

Denmark

Italy

Greece

Ireland

UK

Even at the top

of the boom

Ireland never

reached the

Lisbon

employment

target!

Crisis of a Role Model

“Today Ireland stands as a shining example of

the art of the possible in long-term economic

policy-making, and that is why I am in Dublin:

to listen and learn” (George Osborne, then

UK Shadow Chancellor, 23/02/2006)

Osborne highlighted Irish ‘world class’

education, global R&D because of low tax,

and 12.5% corporate tax rate

Gate Openers (1): FDI

Attracting FDI has been the leitmotiv of Irish economic policy since 1956

No longer low cost manufacturing (e.g. Barry, 2007) » Logistics, service, support, headquartering

» Dell moved production from Limerick to Poland in 2009, but employs 2.200 in support, sales and research

» Google EMEA headquarters in Dublin

» Almost entirely US-owned: electronics, software, pharmaceuticals, medical appliances

» Since 1980s almost entirely non-union

Incentives » Increasingly focused on tax rate rather than location, infrastructure,

education

Politics » Transformation of Irish-America: A dramatic example of elite diaspora

politics (cf. US Israeli lobbies) with access to US political and corporate elite

» Unspoken role of American Chamber of Commerce in Dublin: direct and indirect influence, increasing acceptance of ‘Boston not Berlin’

» Conflict with EU ‘partners’ pre-progammed

Gate openers (2): Financialisation of everyday life

‘Residential capitalism’ (Schwartz & Seabrooke, 2008)

2000 82% all Irish households owner-occupiers, one of highest in Europe, but c50% then debt free

THEN combined with extensive mortgage credit

House becomes an asset

‘We are the first in Europe to see property as an asset class. We use it as a substitute for pensions and now are buying overseas.’ Fay Davies, Director of international property at Jackson Stops & Staff, FT 29.10.03).

By 2008 Irish households highest rate of 2nd home ownership in Europe

Lite wealth

Widespread small property ownership

Links to development of retail financial services (loans, estate agents, car financing, insurance…)

No longer just consumption property

Pension ‘reform’

Share ownership (Eircom privatisation)

Fungible assets

Facilitate recommodification of pension, health, education

Life chances not just determined by occupation

Gate openers (3): Light touch banking regulation

The conventional economic argument: Euro-membership plus weak banking regulation generated credit boom

But this ignores:

Political commitment to ‘Anglo-Saxon’ financial system

Dublin ‘International Financial Services Centre’ as key element of growth strategy post 1980s crisis – light touch regulation as policy and explicit attraction

The context for » Emergence of new rogue banks and competitive bubble lending

to developers

» New business elite: A ‘golden circle’ of bankers, property developers and politicians

Gate openers (4): Social partnership

Tripartite national agreements » Starting 1987 Programme for National Recovery

» Widening membership, policy areas;

» Also workplace partnership (Roche & Geary, 2000); local partnership (Sabel, 1987)

Consequences » Seen as delivering higher employment, higher wages, low

income tax; no major shift towards state services (Teague & Donaghey, 2009); high social welfare benefits and low activation (Grubb et al, 2009): consolidated financialisation

» No extension union rights (unions excluded from FDI sector) and increasingly public sector producer lobby; consolidated FDI framework

Crash!

99,224

231,539

186,841

79,874

34,812

120,037

8,719 0

50,000

100,000

150,000

200,000

250,000

New motors and new mortgages 1990-2012

Number of new cars registered

Number of new mortgages

Source: Revenue (car

registrations); Department

of Environment

Who’s loosing out?

50

60

70

80

90

100

110

120

Q4_07 Q2_08 Q4_08 Q2_09 Q4_09 Q2_10 Q4_10

Employment and Occupation 2007-2010

Managers, self-employed

Managers, employed

Professionals

Associate Prof/Technicians

Clerical

Craft

Pers./Protective Services

Sales

Operatives

Other

Derived from Muhlau (2012)

Job losses most amongst unskilled and craft building

workers

Household debt

‘In Ireland the level of mortgage lending

per capita increased 10-fold over the

period 1995–2008, the level of credit-

card debt per capita rose by just under

700 per cent (Central Bank, 2005,

2010) and the ratio of household debt to

disposable income rose by 270 per cent

between 1995 and 2008 (Oireachtas

Library & Research Service,2010).

Mortgage arrears

More than 12% all personal

mortgages now in serious arrears

Old and new credit squeezes

I see [possibly illegal]

moneylenders knocking

on people’s doors and

the other thing is I see

people with the [hire

purchase] catalogues, a

lot of people have got

into that lately

(Stakeholder, Tallaght)

I know quite a few

couples who bought the

one bedroom apartment

thinking that they would

do that for a couple of

years and then upgrade

and they are in such

negative equity...the

income is not as high

and they can’t even think

about having families

(Stakeholder, Stepaside

Emigration ‘like the Famine’?

In the Great Famine

1845-9 over 1 million

died and 1-2 million

emigrated.

Todays’ migrants

are educated and/or

skilled

The poor and

unskilled largely stay

Famine Memorial Dublin

Coming and going

-100

-50

0

50

100

150

200

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Immigration and Emigration 1987-2012

Net migration

Emigrants: All destinations

Immigrants: All origins

Who’s leaving

0

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010 2011 2012

Emigration and nationality 2006-2012

Other nationalities (7)

EU15 to EU27 states

EU15 excluding Irish and UK

UK (1)

Irish

Only from 2011 were most

emigrants Irish nationals

New places?

0

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010 2011 2012

Emigrant destinations 2006-2012

Rest of world

USA

EU12

EU15

UK

Declining unions?

25

26

27

28

29

30

31

32

33

34

35

36

37

38

2004 2005 2006 2007 2008 2009 2010 2011 2012

% em

plo

yed

Trade Union Density 2004-2012

Male

Female

Total

End of partnership

Partnership institutions allowed to decay

» Unions just another pressure group (Culpepper &

Regan 2014)

Two rounds of public sector pay cuts

Unions concentrated in public sector

BUT:

» Tax increases and wage cuts largely ‘progressive’

» No redundancy agreements

» Benefit levels and minimum wage largely

maintained

HOWEVER cuts in services, rising poverty...

Welfare state survival

Pre-crash 2011

Gini 31.7 (2007) 31.1

At risk of poverty 18.5 (2005) 16.0

At risk of poverty before

transfers

50.7

Absolute deprivation 11.8 (2007) 24.5

• Initial tax changes and public sector salary cuts progressive

• Core cash benefits maintained (monetary welfare state)