Jobs initiative merely sets the groundwork

The Government’s jobs initiative is welcome as it again demonstrates an acknowledgement by our politicians of the seriousness of the employment crisis.

Coming less than a year after the last one, however, we must wonder if this will be yet another in a seeming never-ending series of job initiatives.

This plan is ambitious: 100,000 jobs will apparently be created within a short time and no less than 200,000 within a short few years, all but solving the employment crisis if we get any hint of growth. And there is an unemployment crisis — 75,000 persons under the age of 25 are on the live register, and all international evidence suggests the younger and the longer the duration of unemployment a person experiences, the greater a negative effect this has on future employability.

Of these 75,000, around 27,000 are on the register for more than one year, two-thirds of these being males. The long-term effects on this cohort will be very negative, and in my view this is where any jobs initiative should be targeted first.

The standardised rate of unemployment now hovers around 14.5%, in the face of renewed emigration. In some areas this crisis is worse than others: with less than 10% of total population, the border region has 15% of the live register and a similar percentage of youth unemployment.

We have had jobs announced aplenty in recent years. The May 2011 initiative was short on numbers, but subsequently, Enda Kenny noted that 100,000 jobs would be “a start”.

In 2008, the smart green economy unveiled by then taoiseach Brian Cowen promised ‘thousands’ of jobs in green energy and up to 12,000 jobs in rural areas.

The cloud computing initiative in Jan 2011 had figures in total for up to 20,000 jobs. The proposals were mainly sensible if sometimes pious. For the most part they are bureaucratic and technocratic in nature, which is in fact a good thing.

For the most part, outside direct employment, governments can’t really create jobs, but they can create the business, economic and socio-political environment wherein jobs are created. It is difficult to argue with many of the initiatives.

Equally, it is difficult to see why a government initiative is required to, for example: “Identify any sheltered areas of the economy where competition is restricted and commission studies on such areas where appropriate,” (1.37) or “Engage with stakeholders on the findings revealed in credit supply and demand surveys with a view to identifying and addressing blockages in the system,” (3.35). Were all the aspirant actions contained in the document carried through then a start would be made to the transforming of the jobs ecosystem. But then we will have to ask from where the jobs will emerge?

A radical transformation of the employment landscape is not easily achieved.

The structure of present day employment is therefore a good place to evaluate the ability of jobs to be created. That is not to say that we will not see the emergence of new poles of employment. It is merely to realise that such will start small and take years or even decades to generate significant jobs.

What is conspicuously missing is the largest single driver of employment — economic growth. Growth is noted as the driver, as the engine, as the catalyst, and this is the case.

How can we create jobs in an environment where GDP is forecast to grow by anaemic levels? Forecasts for GDP growth range from 0.5% from the central bank, 0.9% the ESRI, 1% the OECD, 1.1% the EU commission.

At present the structure of employment is heavily weighted to a few sectors. The bulk of employment, as of the third quarter of last year, nearly 40%, comes from just three sectors, manufacturing, trade and health services. High-tech jobs account for less than 4% of all employment. Other large sectors include the hospitality sector and education.

Thus, any significant growth in jobs will come from these sectors, and they are all dependent on either government spending or economic growth in general. There is a weak statistical relationship between GDP growth and employment growth, weak as there are many factors involved other than just the measure of GDP, but a simple rule of thumb is that as GDP rises by 1% employment in that quarter rises by 0.1%.

Thus sustained, lengthy periods of GDP growth will be required to reduce the overhang. And there is little prospect of such a sustained growth spurt in the next half decade.

It is in that context that we need to assess the jobs initiative, and my assessment is that while worthy and useful, it is the merest preparation of the ground for a crop yet to be sown.

* Brian M Lucey is professor of finance at TCD and managing director of Ussher Executive Education

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