The Belated Irish Success

Introduction

"Historiography" of the TigerThe Cartoon Version of Supply and DemandLogarithms and the Labour Market!

Possible Answers - 1

Walshƒ Demography, FDI etc., fiscal reform

Ruane, Barryƒ FDI

Harmon et al.ƒ Education

O'Rourkeƒ Mechanism of convergence

Possible Answers - 2

McAleese - Openness (EFC and CJH)Lane - Labour share fallingMurphy - It never happened!The Fairy Godmother (Godparent) viewGiavazzi et. al. EFC - see Bradley & WhelanHonohan & Walsh- The last wordBarry – FDI, FDI, FDI, FDI, …..

First order issues:ƒ Openness & EUƒ Human capitalƒ Demographyƒ FDI

Second order issues:ƒ Fiscal policy,fiscal reform, deregulationƒ Monetary policyƒ Partnerhip and policy consensusƒ Structural Funds

Candidates

Openness

Freeing of Trade - FDIƒ Affects demand for labourƒ See effects in labour market

Migrationƒ Increases elasticity of labour supplyƒ Wider cultural effects

Learning from others' experience

Labour Supply

Natural IncreaseFemale ParticipationMigrationHuman CapitalReplacement Rate

Birth Rate

Total Fertility Rate by Education

Population Structure 2002

0 50000 100000 150000 200000 250000 300000 350000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

Age

Female Labour Force Participation

19881989

19901991

19921993

19941995

19961997

19981999

20002001

10

20

30

40

50

60

70

80

90

Primary

Inter

Leaving

Third

Source: Labour Force Survey micro data

Population aged 20 to 64

Female Labour Force Participation

0

10

20

30

40

50

60

70

80

90

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

%

1988 2001

Female Labour Force Participation

0

10

20

30

40

50

60

70

80

90

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

%

Ireland, 2001 EU, 2000

Immigration

-60

-40

-20

0

20

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Education of Emigrants

Net Emigration

Cumulative Total for previous 15 years

-100

0

100

200

300

400

500

600

1945

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

Th

ousa

nd

s

Population who have resided abroad

Under 2525-29

30-3435-39

40-4445-49

50-5455-59

60-6465-69

70-7475+

5

10

15

20

25

30

35

40

Other Third Level

Source: CSO Census of Population

% of Population, 1996

Educational Attainment, 30-39

Educational Attainment

Sectoral Human Capital

Unemployment Rate

19881989

19901991

19921993

19941995

19961997

19981999

20002001

0

5

10

15

20

25

30

Pe

rce

nta

ge

PrimaryJunior

Leaving Third Total

Source: Labour Force Survey micro data

Population aged 20 to 64

Labour Supply

Avaerage annual Increase

-0.50

0.51

1.52

2.53

3.5

1990-95 1995-00 2000-05 2005-10 2010-15

percen

tag

e p

oin

ts

Natural Increase Female ParticipationMale Participation Migration

Replacement Rate

Skilled LabourEffects of increase in supply

Returns to Education - All Employees

Demand for Labour

FDIShifting world demand for skilled labourCompetitiveness

US Manufacturing FDI Flows

Relative Wage Rates

Skilled LabourEffects of increase in supply and demand

w1w1

L1

Unskilled Labour

D1

L2

w2

S2

w0

L0

D0

S1

Wage rate

Employment

Relative Wage Rates

Earnings Dispersion, Ireland 1987-2000

hourly earnings 1987 1994 1997 2000

Top/bottom

decile

4.2 4.7 4.8 3.7

Enabling Factors

Sound Public FinancesSpeed of adjustment

The EU Structural Funds Social Partnership

GNP

-15

-10

-5

0

5

10

15

20

1974 1979 1984 1989 1994 1999

%

GDPE GNP

Fiscal policy Indexation 1974-2000

Fiscal Stance

-8

-6

-4

-2

0

2

4

% o

f G

NP

1975 1979 1983 1987 1991 1995 1999

Stimulus is positive

CSF 1989-93 and 1994-1999

Addition to level of GNP, percentage points

0

1

2

3

4

5

1990

1995

2000

2005

2010

1994-99

1989-93

Ireland in the Medium Term

• Potential to Outperform Neighbours to 2010• Supply Constraints still Relevant• Short-term – Problems• Vulnerabilities

GNP Forecasts

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007

Nov-02 MTR Benchmark MTR Slowdown

Average Growth of GNP

Relative GNP

Demographics

Dependency ratioConvergence in output per headConvergence in output per worker

Economic Dependency

Investment as a Share of GNP

1990 1995 2000 2005 201015

20

25

30

%

Ireland Germany

Participation Rates:

Migration:

Output:

Labour Demand:

Demand for skilled and unskilled labour:

- Little substitution between skilled and unskilled

Wage rates:

Skilled labour market, fixed UR:

Skilled wage rate flexible, changes to clear the market

Unemployment Rate

Labour Supply:

Population:

Shock the Model

Objective:ƒ To see how skilled and unskilled labour markets

are affected by different factorsLower FDI, Lower GrowthLower Human Capital

ƒ Educational Attainment Frozen at 1980ƒ No migration

No Migration

1 : NH/POPH = 9.1+0.525*LOG(WH/PC)-.0049*TYEAR

2 : NL/POPL = -.44+0.525*LOG(WL/PC)-.21*LOG(RUP/WL)-.012*UR

3 : M = -432+289*(1-UR(-1)/100)/(1-UR_UK(-1)/100)+ 1362*W*(1-tax_IRL)/PC/(W_UK*(1-tax_UK)/PC_UK)- 20*D78+22*D90

4 : LOG(GNP) = -3.5-.018*LOG(W/W_UK)+.0016*TYEAR+ (1-.85)*LOG(GDP_USA)+.85*LOG(GNP(-1))

7 : LOG(L/GNP) = 17.8-.51*LOG(W/PC)-.0098*TYEAR

8 : LOG(LH/LL) = -113.5+.057*TYEAR

Elasticity of 0.525 - Doris, 1999

Kearney, 1998

Elasticity wrt US imposed as 1 (LR)

Lower FDI, Effect on GDP

Lower FDI, Effect on Wage Rates

Lower FDI, Effect on Immigration

Lower FDI, Effect on Unemployment

Educational Attainment

Unchanged Educational Attainment

Lower Human Capital - GDP

Lower Human Capital - Wage Rates

Lower Human Capital - Unemployment

Skilled Labour Supply % 3.2 Skilled Wage Rates % -4.7 GNP % 1.5 Total Employment % 3.2 Unemployment rate % -0.7

Effects of Net Immigration, 1996-99

Immigration Reduced by 10k

Immigration Reduced by 10k

Immigration Reduced by 10k

Immigration Reduced by 10k

Immigration Reduced by 10k

Conclusions

Growth predciated on opennessHuman Capital contributed 1% a yearFDI ?Return from FDI and Human Capital enhance one another