Principle Economic Status – Self Assessed

The QNHS is used as the primary measure of unemployment in Ireland.  We already saw that there may be some issues with the method used by the CSO to estimate the seasonally adjusted unemployment rate.  A second issue emerges when we consider the definitions of employment and unemployment used by the CSO.

In Employment: Persons who worked in the week before the survey for one hour or more for payment or profit, including work on the family farm or business and all persons who had a job but were not at work because of illness, holidays etc. in the week.

Unemployed: Persons who, in the week before the survey, were without work and available for work within the next two weeks, and had taken specific steps, in the preceding four weeks, to find work.

Working for one hour in the week prior to the survey means that the respondent is classified as employed.  The QNHS includes an additional question that asks people so self assess “their usual situation with regard to employment” and gives the following response categories:

• At work
• Unemployed
• Student
• Engaged on home duties
• Retired
• Other

Using this measure there are 352,000 people who classify themselves as unemployed which differs from the 295,000 people on which the 14.0% unemployment rate.  Here are the proportions of the above categories for the population aged over 15 since 2003.

The changes may not be as pronounced as some might expect but the largest change since 2007 is obviously the drop in those at work and the rise in those unemployed.  Since Q4 2007 the proportion at work has fallen from 58.6% to 50.4%.  Most of this reduction has been picked up in the proportion unemployed which has risen from 3.5% to 10.0%.  The other categories are largely unchanged.

The 352,000 people who classify themselves as unemployed further belies the claims by many that there are 450,000 people unemployed in Ireland based erroneously on the numbers on the Live Register.  The Live Register is not an accurate measure of unemployment.  However, as we saw previously we could be closer to this 450,000 figure if many of those who have left employment had not also left the country (and in the majority of cases these were non-Irish nationals). 

Any claims that there are 450,000 unemployed are wrong.  The “official” figure is 295,000 and the “self-assessed” figure is 352,000.

If we use the sum of those who classify themselves as at work or unemployed as a measure of the labour force then the implied unemployment rate from this question in the QNHS is 16.1%.  The headline rate might be showing some improvement but that is not reflected in how respondents to the QNHS see their reality.

Nor is there any improvement when we look at those at work.

Using these measures it appears that the labour market is not getting any worse, but not getting worse is not the same as getting better.  Hopefully this stabilisation will convert to improvement over the coming quarters.

Adjusting Unemployment

Yesterday’s release of the the QNHS saw the headline rate of unemployment fall from 14.8% in Q4 2010 to 14.0% in Q1 2011.  This “improvement” must be examined in the light of the continued FALL in the numbers employed which fell from 1,823,200 to 1,804,200.  The unemployment rate fell but the numbers employed fell by nearly 20,000.

Another issue to consider is the fact that it is the seasonally adjusted rate which is usually given the most weight when assessing changes in unemployment.  However, over recent quarters this seasonally adjusted rate has exhibited a volatility which may not be reflective of actual outcomes in the labour market.  Here are the adjusted and unadjusted unemployment rates.

Over the past three quarters, the adjusted rate has gone from 13.5% to 14.8% to 14.0%.  Over the same timeframe the unadjusted rate has been 13.9%, 14.1% and 14.1%.  The volatility in the adjusted rate suggests that labour market conditions deteriorated markedly in Q4 2010 and then improved again in Q1 2011.  It is likely that neither occurred and there has been no significant change in unemployment as reflected in the unadjusted rate.

There seems to be some problem with the Q4 adjustment made by the CSO.  If we look at the 2009 numbers we see that in Q4 another gap emerged between the adjusted and unadjusted rates.  This also happened to a lesser extent in 2008.

It may be that the CSO itself needs to adjust its adjustment method for the unemployment figures to better reflect the muted performance of the Irish economy in recent years.  The headline unemployment rate may have gone from 14.8% to 14.0% but I don’t think we’ll be cheering it just yet.

“It’s all Greek to me”

Students of economics are often faced with a plethora of Greek symbols leading many to despair “it’s all Greek to me”.  For the past while all things Greek have jumped from econometrics textbooks to the economics headlines.  And the turbulence is being felt over here.  This graph from Bloomberg shows an average 10-year yield for Irish government bonds.

You can see that actual yields at yesterday’s close for the outstanding Irish government bonds in this daily report from the NTMA.

Since the start of the year Irish bond yields have been rising almost incessantly.  The only notable decline took place in the 10 days following the March 31st stress tests of our ailing banks, which did garner some international credibility.  That fall was quickly reversed and the yields quickly rose back above 10% and have recently settled above 11%.

Today has already been a volatile day and after opening at 11.55% an hour ago the yields are up to a record 11.69%.  The Department of Finance, IMF, European Commission might be saying that the rescue package is working but we are getting further and further from a return to these markets to raise money rather than closer. 

When the IMF rolled into town the 10-year yield was 8% and it was felt that was sufficient to warrant calling on external help.  Six months into that rescue package and the yields are racing to 12%.  The torpor in the Irish economy continues but there has not been negative news in the past two months that can explain our surging bond yields. 

It is been political rather than economic developments that have driven the changes and it is clear that political institutions at national, European and international level do not have a credible strategy for dealing with this debt crisis.  This is now coming to a head in Greece and it is expected that a similarly disjointed approach will be taken when the circus returns its focus on Ireland. 

Ireland may not be Greece but with the same people providing the “solutions” it is not hard to see why our yields are moving so closely together.

From an Irish perspective this can be readily summarised using Michael Noonan attempt at kite-flying from Washington during the week when he suggested that burden-sharing with the €3.5 billion of senior unguaranteed unsecured debt in Anglo and INBS was back on the table.  What has been the reaction of the ‘troika’?

• According to Noonan the IMF support this idea but no one in the IMF has actually come out and said this.
• The European Commission have said they “always ready to consider any proposal” but hadn’t heard anything about this latest move.
• And the ECB? Well, the ECB is so opposed to burden-sharing that they still think that Greece can pay back all its debt.

And we wonder why the markets are reacting as they are.  Seems perfectly rational to me.

UPDATE: Today’s volatility has continued and the breakfast time rise to 11.7% percent has been followed by a lunchtime drop to below 11.4%.  Check out the 1Day graph here though movements like this at these levels are largely academic.

Wages remain ‘sticky’

UPDATE: The original version of this post was based on incorrect numbers that were posted to the CSO website yesterday.  This has now been corrected and so has this post.  The correct figures do not suggest that wages are as ‘sticky’ as the post title might suggest.

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As well as the QNHS, the CSO have today released the Q1 2011 Earnings, Hours and Employment Costs Survey.  Here are the average weekly earnings for the overall economy with the public and private sector averages also provided.

The average weekly wage in the economy in Q1 2008 was €704.  Three years later and after the deepest, and swiftest, recession this economy has seen the average weekly wage in the economy is €675.  Average gross weekly wages have fallen by 4.2%.  Income Tax increases will have further reduced net pay.

In the public sector, the last three years has seen the average weekly wage move from €905 to €871.  The drop below the Q1 2008 level that occurred in Q1 2011 is partially the result of 5,200 temporary employees hired for Census 2011.  If these employees are ignored average weekly gross pay in the public sector was €881.  Average weekly gross pay in the public sector is down 2.6% since the start of 2008 but is unchanged since Q1 2010.

This is even after the public sector wage cuts announced in the December 2009 budget which gave rise to the largest fall seen in the graph.  It should be noted that these gross figures do not account for the public sector pension levy introduced in April 2009 which resulted in an average 7% reduction in take home pay for public sector workers that was not applicable to private sector workers.

In the private sector average weekly wages have fall from €643 to €603, a fall of 6.2%.  It can also be seen that private sector wages have continued to fall with a 1.8% fall recorded in the year since Q1 2010.

A word of caution should be noted when interpreting these averages.  These averages are simply the total pay bill divided by the number of employees.  In recent times both the numerator and denominator of this ratio have been changing.  For example, although wages are showing little change, this could because job losses are concentrated among lower paid workers (causing average wages to rise), while wages fall for everyone else (causing average wages to fall).  The aggregate effect of this could be static average wages.

To show the effect of job losses here is an index of total earnings for the public and private sector. 

Gross earnings in the public sector are down about 6% since the start of 2008 (and over 10% since the end of 2008).  In the private sector gross earnings are down 24% on the start of 2008.

In both the public and private sectors aggregate earnings were largely unchanged during 2010 and the seasonal drop usually recoded in the first quarter is also seen in 2011.  Here is a snapshot of aggregate earnings for the entire economy.

Employment by Sector

In this instance we will use today’s QNHS figures to look at the change in employment by sector, and in particular the changes in employment for Irish and non-Irish nationals. Here are the numbers employed by sector.

Nearly two-thirds of non-Irish national employees are in just four sectors: industry, retail,accommodation and food service and health.  In the fourth quarter of 2007 there were 48,000 non-Irish nationals working in the construction sector.  Now it is just 9,000. 

These are the proportions of workers in each sector who are non-Irish nationals.

Here are the changes in employment by sector.  The huge drop in construction employment for non-Irish nationals can clearly be seen.

Employment for non-nationals has fallen in all sectors since the peak in the final quarter of 2007.  If we look at the same graph for the past year we see the following:

Employment is still falling in 13 of the 14 sectors.  The only sector with growing non-Irish national employees is the Agriculture sector.

Finally we will compare the last 12 months for Irish and non-Irish nationals. Click to enlarge.

A somewhat contrasting picture emerges of the labour force outcomes for Irish and non-Irish nationals.  Both groups have continued to see job losses in construction,  retail and, to a lesser extent, financial service.  For Irish nationals, there continues to be a large number of jobs shed in industry.

However, while agriculture is the only one of the 14 sectors shows an increase in employment for non-nationals, over the past year employment of Irish nationals has risen in seven of the 14 sectors, but it must be noted that these rises are modest and do not offset the jobs lost in declining sectors.

Over the past year there has been a decline of 18,800 (or 1.2%) in the number of Irish nationals employed, while at the same time there has been a decline of 34,500 (or 14.5%) in the number of non-Irish nationals employed.

Changes in Employment and Unemployment

Here’s another quick update from today’s QNHS release.  Here are the absolute changes in employment and unemployment since the third quarter of 2007 (peak employment).

Since 2007 there has been a reduction of 345,000 in the number employed.  Over the same period the number unemployed has risen by 198,000.  Over the past three quarters the number employed has fallen by 47,000 and over the same time the number unemployed has also fallen (though only by 3,000).

If the reduction in the numbers employed had corresponded exactly to the increase in the numbers unemployed, then the number unemployed would be nearly 450,000 rather than the current figure of 295,700.

As before the question is: where did these 150,000 people go?

We get a small part of the answer if we look to Irish nationals.  The gap here is around 50,000.  There has been a fall of 216,000 in the numbers employed and a rise of 168,000 in the numbers unemployed.  We can also see that over the past two quarters both of these measures have been largely unchanged.

The picture is somewhat different when we look at non-Irish nationals.  There is a huge gap between the reduction in employment (139,000) and the increase in unemployment (24,000).

We can also see that there has been an acceleration in the reduction in employment for non-Irish nationals which fell by 17,000 in the first quarter of 2011.  At the same time the number of unemployed non-Irish nationals also fell (by 5,000). 

It is clear that a lot of the recent dynamics in the Irish labour force is being driven by the departure of non-Irish nationals from the country.

Changes in the Labour Force

The CSO have just released the Q1 2011 Quarterly National Household Survey (QNHS).  The headline number is that the seasonally adjusted unemployment rate has fallen from 14.8% to 14.0%.  Here we will continue our series that looks at the composition by nationality of the labour force.

First up, the number of non-Irish nationals in the labour force.

Since peaking at 366,000 at the end of 2007, the number of non-Irish nationals has declined by nearly one-third and now stands at 248,000.  There has been a reduction of 143,000 in the number of non-Irish nationals in employment but an increase of only 24,000 in the number of unemployed non-Irish nationals to 45,000.  In fact over the last two quarters both the number of non-Irish nationals employed and unemployed has been falling.

As a percentage of the labour force the number of non-Irish nationals is now back to levels last seen in 2005.

As in previous quarters the biggest driver of these changes has been workers from the EU-Accession states who account for more than half of the drop of the number of non-Irish nationals in the labour force.

Although the numbers of unemployed non-Irish nationals has been falling the unemployment rate among non-Irish nationals (18.1%) remains higher than among Irish nationals (13.1%) 

Of the 296,000 total unemployed, 45,000 are non-Irish nationals and 251,000 are Irish-nationals.  The proportion of those unemployed who are non-Irish nationals has been steadily declining since 2009. 

In the first quarter of 2009, 22% of those unemployed were non-Irish nationals.  This has now fallen to 15%.  The final graph in this post gives a breakdown of the unemployment rates.