The Great Stagnation

THE GREAT STAGNATIONMichael TaftResearch OfficerUNITE the Union

Exiting the Great Recession into . . . • The Great Recession is nearing the end

• Employment is expect to bottom out this year though domestic demand may still fall marginally over the next year or two.

• We are in danger of entering into a Great Stagnation – a statistical recovery but a continuing peoples’ recession characterised by a number of economic and social crisis.

• The following focuses on 3 of these

1st Crisis: Unemployment• Over the life-time of this Government – after the Jobs

Initiative, the Action Plan for Jobs, two self-styled ‘job enhancement’ budgets and the recent 10-point employment plan - the coalition now projects that unemployment will fall by only 1 percentage point.

• The subjective PES measurement shows an even higher level of unemployment: 17.3 percent compared to the official 14.8 percent (seasonally adjusted).

• The IMF projects unemployment to be close to 12 percent in 2017. Double-digit unemployment will be with us for some time.

Unemployment Projections

Coalition Tak-ing Office

2012 2013 2014 2015

14.213.7

12.7

11.5

10

14.914.6

14.1

13.1

SPU April 2011 Budget 2013

Under-Employment• Another feature of the crisis is the rise in under-

employment – those who are willing and able to work extra hours but can’t access the work. This is giving rise to the phenomenon of precarious work and the precariat.

• This is likely to predominate in the low-paid sectors – especially as the Government incentivised part-time work through the reduction of the low-rate Employers’ PRSI.

• MANDATE, in a survey of its own members in the retail sector conducted by Behaviour & Attitudes, found that 38 percent were actively seeking additional hours.

Under-employment Rate %

Q3 08 Q3 09 Q3 10 Q3 11 Q3 12

4.5

5.8 6.0

7.68.0

Employment Projection Revisions• When the Government took office, employment was

projected to increase by 104,000 between 2011 and 2015.

• A year later, this was revised downwards to 62,000

• In Budget 2013, this was revised downwards again – to 31,000.

• Long-term projections, based on IMF data, suggests that we won’t return to pre-crisis levels of employment until 2022.

Employment Projections: 2011 - 2015

SPU April 2011 SPU April 2012 Budget 2013

104,000

62,000

31,000

Long-Term and Structural Unemployment

• Employment in managerial and professional grades has increased during the crisis. Non-manual and manual working classes have been disproportionately hit.

• The danger of long-term and structural unemployment becoming embedded – with the social issues that raises.

• This will further depress wages and living standards in domestic sectors.

Employment: 2007 to 2012Managerial &

Prof/Tech Non-Manual Manual Elementary Total

6.8%

-11.6%

-34.5%-30.6%

-15.1%

3 Areas of Concern• 1. Between 2000 and 2007, nearly 60 percent of all new

employment came from construction and non-market services. This doesn’t count business, financial and personal services reliant upon property activity. Nor does it factor in the demand created in other domestic sectors.

• Future employment, on current trends, will not be able to rely on the construction or non-market sectors to drive employment.

• 2. With domestic demand expected to remain subdued, employment growth will `remain sluggish.

• 3. Even when the output gap closes – unemployment will still be in double-digits.

Domestic Demand and Employment

1986 1990 1995 2000 2005 2010 2014-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Employment Demand

Output Gap and Unemployment

2009 2010 2011 2012 2013 2014 2015 2016 2017

-2.4 -3.2-2 -2.1 -1.9 -1.2 -0.4

0.1 0.3

1213.9 14.6 14.8 14.7 14.2 13.4 12.5 11.7

Output Gap Unemployment

2nd Crisis: Deprivation• Last year the IMF applauded Ireland for protecting its

citizens against rising poverty. They produced a graph showing that relative poverty had not significantly increased up to 2010. This is absolutely correct. And the conclusion –

• ‘Ireland’s strong social supports have avoided a rise in poverty during the crisis’

• is absolutely wrong. • The reason relative poverty did not rise? Median income fell

- the only EU-15 country to do so up to 2010. • When the bottom half of society is getting poorer, it is no

consolation to the tell the poorest that though they are getting poorer they not getting relatively more poorer

Deprivation Measurements• The CSO and Eurostat measure the level of deprivation

experiences. CSO’ uses 11 deprivation experiences:

• Home and Clothing: unable to afford heat / keep house adequately warm / two pair of strong shoes / new clothes / replace worn out furniture / waterproof coat

• Food: unable to afford meat/chicken/fish every second day / roast once a week /

• Social Participation: unable to afford to go out in last 2 weeks / have friends/family over for a meal/drink once a month / to buy presents for family/friends once a year

Deprivation• Over 1,000,000 people experience multiple deprivation

experiences. This has doubled since the crisis began.• Nearly 340,000 of these are children.• Deprivation is not a phenomenon of the ‘welfare class’.

Nearly 25 percent of one-income households (and 10 percent of two-income household) experience multiple deprivation.

• Deprivation persists into higher income deciles.• This data is from 2010 – reasonable to assume, after

three regressive budgets, and poor economic performance, that deprivation levels are even higher today.

Enforced Multiple Deprivation Experiences

2005 2006 2007 2008 2009 2010

616 585512

610

762

1,006

Population (000s)


2008 2009 2010

195,151

258,880

338,496

Children (000s)


2008 2009 2010

15.117.3

22.6

5.9 5.1

9.6

In-Work Deprivation (%)One Income Two Income


1st - 2nd 3rd - 5th 6th - 8th 9th 10th

32.1

16.8

7.4

0.2 0

41.6

31.4

13.7

4.81.6

Deciles – Net Equivalised Income (%)2008 2010

Food Poverty• The DSP commissioned a study into food poverty.

Criteria:• Inability to afford a meal with meat or vegetarian

equivalent every second day• Inability to afford a roast or vegetarian equivalent once a

week• Whether during the last fortnight, there was at least one

day when the respondent did not have a substantial meal due to lack of money

• Another word for food poverty: hunger

Food Poverty

10

2420

16 15 14

Food Poverty Rate By Category: 2010 (%)

Eurostat: Severe Material Deprivation

• Eurostat has a harsher measurement: severe material deprivation which measures those who cannot:

• pay their rent, mortgage or utility bills * keep their home adequately warm * face unexpected expenses * eat meat or proteins regularly * go on holiday * afford a television set * a washing machine * a car * a telephone.

• Satisfies the criteria if respondent cannot afford 3 of the 9 deprivation


GreecePortugal

IrelandItaly

BelgiumFrance

UKGermany

AustriaSpain

FinlandDenmark

NetherlandsSweden

Luxembourg

11.69.0

7.56.9

5.95.8

4.84.5

4.34.0

2.82.7

2.21.3

0.5

2010 Population (%)


GreeceIreland

PortugalItaly

FranceBelgium

UKSpain

AustriaGermanyDenmark

NetherlandsFinland

SwedenLuxembourg

11.69.29.2

7.56.56.4

6.24.84.8

4.62.8

2.22.1

1.30.3

2010 Households with Dependent Children (%)

3rd Crisis: Investment

• Investment has fallen to the lowest level in the Eurozone and is projected to remain a bottom dweller for the foreseeable future.

• By 2017, Irish levels of investment will be nearly half that of the Eurozone average – equivalent to nearly €17 billion.

Investment Past and Projections

1985 1990 1995 2000 2005 2010 20175

10

15

20

25

30

19.2

10.7

Eurozone Ireland

% o

f GD

P

Challenges to Investment• The Government is aggressively cutting its own

investment expenditure. Between 2011 and 2015 it will cut investment by over 36 percent.

• However, even were this reversed, would only make up a small difference between Ireland and Eurozone average.

• Need to create the conditions, the incentives and vehicles to increase business investment.

• The historical trends not encouraging. In the period prior to the recession – Irish corporate investment and non-building investment lagged behind EU-15 averages.

Government Investment

1985 1990 1995 2000 2005 2010 20150.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

% of GNI

Corporate GFCF

2002 2003 2004 2005 2006 2007 2008 2009 20102.0

4.0

6.0

8.0

10.0

12.0

14.0

EU-15 Average Ireland GDP Irish GNP

%

Non-Building GFCF

1998 2000 2002 2004 2006 2008 20103.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

Other EU-15 Average Ireland - GDP Ireland - GNI

% o

f GD

P

One Perspective to the Challenge• In early 2010 Davy Stockbrokers assessed the increased

in capital stock since 2010. They found:• “investment by private sector in 'core' productive stock

(was) pitiful . . .”• “the increase in our 'core' productive capital stock was

related to the state or semi-state sectors. It was not driven by private enterprise.”

• Over 2/3 of increased productive investment came from state and public enterprise sectors.

• Historical patterns and surveys pose the challenge of how we can maximise public and private capital into productive infrastructure.

Conclusion• In 2010 economists and analysts published an open letter

warning the Government that austerity would result in a lengthy period of low-growth, high unemployment and high debt. UNITE and the trade union movement signalled this warning even earlier. Unfortunately, there is nothing to suggest that they will be wrong.

• Austerity is working – and that is the problem

• An economy carrying high levels of unemployment, rising levels of deprivation, and generating low levels of investment is not a natural candidate for long-term fiscal stability.

Conclusion• The potential of political economy – crude reductionist

benchmarks can only remain acceptable if consent is given. To date, that consent has been given - by many, reluctantly so. But the future is not certain and certainly not inevitable.

• If that consent is withdrawn, if the contest heats up if you will, throwing out more choices – then a more constructive debate may emerge.

• It won’t make up for the damage that has been done to date – but it might just limit the damage that is waiting for us in the future.

Documents

The Great Stagnation