Irish Economy
UK productivity falls; Ireland's apprenticeship system remains a shambles - Part 2
By Michael Hennigan, Finfacts founder and editor
Jan 27, 2015 - 9:15 AM

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Research in the UK covering the period 1996-2008 show that economy has shifted more towards low-skilled jobs and less towards high-skilled ones compared with other European countries, contributing to a fall in productivity, while an INSEAD report also published last week, pointed to the failed Irish apprenticeship system.

UK, Ireland talk up full employment; Focus on quantity not quality - Part 1

A research paper [pdf] from Oxford University says that only the Netherlands (where growth of both groups is smaller) and Portugal had a similar pattern to the UK's - Portugal in fact had no growth in high-skilled jobs. "By contrast, Ireland, which also saw a drop of 9% in middle skill employment, saw six high-skill jobs created for each low-skill job created (the ratio in the UK was four high-skill to every five low-skill jobs)."

For every 10 middle-skilled jobs that were lost in the UK between 1996 and 2008, about 4.5 of the replacement jobs were high-skilled and 5.5 were low-skilled. In Ireland, the balance was about eight high-skilled to two low-skilled, while in France and Germany it was about seven to three.

“In the replacement of those middle level jobs, the UK has shifted far more towards lower-skilled service work than lots of other European countries,” said the paper’s author Craig Holmes.

There is a big caveat in respect of Ireland as almost half the jobs in the direct ICT (information and communications technology - or technologies) sector according to a 2013 estimate by the International Data Corporation of the US for the Irish Government.

The Global Talent Competitiveness Index 2014 [pdf], produced by INSEAD, the French business school, says: "Both Australia and Ireland are hampered by their weaknesses in technical and vocational skills, with the LV skills pillar (Australia: 38th; Ireland: 32nd) disappointing in particular."

We highlighted in the past that the Irish apprenticeship system was the worst in Western Europe.

Feb 2013: Burton pushes EU Youth Guarantee; Irish apprenticeship system a shambles

Jan 2004: Irish Economy 2014: Shambolic apprenticeship system gets some attention at last

Aug 2014: Young and jobless? The solution isn’t always university

Aug 2014: Education & Jobs: Austria has low unemployment, low third level graduate numbers

Overall, Ireland gets a high ranking of 10th best in the world from INSEAD but the indicators including productivity (on paper Google Ireland for example, which accounts for about 40% of Google's global revenues, has the most productive people on the planet), are not reliable.

International R&D spending indicators are also not reliable as the biggest spenders are only Irish companies for tax purposes with their main operations based mainly in the US.

Meanwhile the Financial Times reports today that the UK government has failed to tackle regional imbalances, fix the apprenticeship system and help the long-term unemployed into work, according to the most comprehensive study of its record so far.

"The report from the London School of Economics and the universities of Manchester and York also found that the government’s tax and benefit reforms had made no net contribution to reducing the country’s deficit."

Productivity

UK productivity has fallen further than the G7 (Group of Seven: US, Japan, Germany, UK, France, Italy, Canada) average since the onset of the recession in 2008.

Manufacturing sectors have seen the largest declines in employment, before and after 2007. This includes both low-tech manufacturing and high-tech manufacturing sectors, such as pharmaceuticals and chemicals

The British government says that almost all sectors saw labour productivity gains in the years leading up to the recession. The sectors that saw the greatest gains include communications, chemicals and pharmaceuticals and perhaps surprisingly textiles and clothing . Manufacturing sectors have tended to show better
productivity performance than services post 2007; as their employment has fallen further than output.

The Office for National Statistics (ONS) published data [pdf] on a broad measure of productivity last Friday which show that the main contributor to economic expansion in the UK in 2013 was a rise in hours worked, which accounted for more than three-quarters of the UK's 1.7%t annual growth rate. Capital also made a positive contribution, despite the low levels of investment.

“Essentially all of the reduction in the growth of labour productivity between [the pre- and the post-1997 period] can be accounted for by the decline in the rate of capital deepening,’ the ONS said.

In the last 50 years measured according to GDP (admittedly a flawed metric), the world economy grew sixfold while income per capita almost tripled.

Dominic Barton, the global managing director of McKinsey & Company, says that in the developing world, sustained wealth creation and public-health advances have increased average life expectancy by 20 years since the mid-1970s, and adult illiteracy has been nearly halved in the last 30 years. Inequality among countries has decreased, with more than one billion people lifted out of extreme poverty in the last two decades alone.

"But if we pursue business as usual, the odds of making similarly impressive progress over the next 50 years are not very promising. Since 1964, two key forces have fueled exceptionally fast GDP growth: the expansion of the labour supply, driven by rapid increases in population, and steady productivity gains. According to a report by the McKinsey Global Institute (MGI), the average annual GDP growth rate of 3.5% in the 19 member countries of the G-20 (not including the European Union as a separate entity) and Nigeria owes about 1.8 percentage points to labour and 1.7 points to productivity.

But, as fertility declines and populations age, the labour engine’s contribution to growth will fall sharply, to little more than 0.3 percentage points of annual growth. Even if productivity continues to rise at the same rate, global GDP growth could slow to just over 2% annually, on average – a 40% drop from the last 50 years."


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