Last year we reported [pdf] that Ireland was as dependent on US firms in current times as it was in 1990 but the FDI sector ceased being a jobs engine in 2000.

Headline export figures generate bragging points - -  exports grew at current prices by 71% in the period 2000-2012 and at constant prices by 59% - -  but not significant new job numbers. In 2012, the jobs in teh FDI and indigenous tradeable sectors were below the 2000 level.

With the decline in manufacturing, services jobs in the FDI sector tend to be in sales and administration and the poor multilingual skills is impacting both the potential for indigenous firms to grow exports while the entry of 10 former Communist-controlled Eastern European countries means that most of the new FDI jobs are filled from overseas --   since the 1980s, Ireland has been debating the expansion of language teaching at primary level. The debate is ongoing -- see Eurostat's data on Ireland and the rest of the EU [pdf].  See also here [pdf].

It's not an accident that annual data collected from enterprise agency-assisted companies, omits data on the breakdown of nationality numbers.

Google Ireland's staff may only comprise a quarter of Irish employees.

American companies look to Israel as the location of strategic R&D centres and it's rare for the big US firms in Ireland to do research that merit patents.

FDI and the New Normal

Ireland has had little success so far in attracting FDI from emerging markets and Chinese investors tend to acquire companies in Europe rather than engage in developing greenfield projects.

The change in international tax rules, including the possibility of the US introducing a minimum tax above the current Irish headline corporate tax rate of 12.5%, will reduce the flexibility that is currently available for US investors in Ireland while Dublin's International Financial Services Centre (IFSC) in terms of global reputation of financial centres has plunged from 10th in 2008 to 56th in a sample of 80 cities last September.

While, FDI has peaked, the existing US FDI will remain important for some years to come but with European markets struggling, even with a strong US economy, high growth opportunities for US firms will be in emerging markets.

So coupled with challenges in the US, it would be foolish to believe that  the United States can again provide Ireland with a jobs engine.

Jim O'Sullivan, chief economist of High Frequency Economics, said in a note [pdf] this week: "In round numbers, our guess is that potential growth, properly measured, is now around 2%, down from around 2.5% in the decade prior to the crisis and around 3% in the 1980s and 1990s."

Real US GDP rose an average of 3.4% per year from 1960 through 2007, according to economists at Standard & Poor's, the ratings agency. An average annual difference of over 1% in a generation is very significant.

The term "New Normal" was coined by technology investor Roger McNamee and in recent times, it has been popularised by Bill Gross and Mohamed El-Erian - - the top two executives at PIMCO, the multi-billion dollar bond fund.

El-Erian has argued that once the phase of deleveraging, de-globalisation and re-regulation is over, investors and policymakers will “find themselves in a landscape that only partially resembles that which dominated the 2003-2007 period.”

By this time next year, “the market will realise that potential growth for the US is no longer 3%, but is 2% or under,” Mohamed El-Erian, said in an interview with Bloomberg Radio in May 2009.

John Wasik of Reuters recently wrote that more than 10,000 "Baby Boomers" turn 65 every day and will continue to do so for the next 19 years, so as an investor, you need to focus on what this population will demand. Retired people require fewer consumer goods and that means fewer homes, appliances and lower sales for many items.

Working at poverty-level wages as a home aide, is the fasting growing jobs category in the US, and it's also a bad time for retirees.

Previous generations, for instance, could rely on defined benefit plans, or pensions. Pension plans, which provide a fixed monthly income for life, regardless of what's happening on Wall Street, have been vanishing as employers shift the investment risk associated with retirement to their employees.

Brad DeLong, a University of California Berkeley economist, recently said at a conference:

The new normal is different, the new normal is not an employment-to-population ratio of 63%. It’s an employment to population ratio of 59%. Out of every 15 people who we would have expected to have a job in the America of 2007 doesn’t have a job in the America of today. There is no sign that this will change. We have now seen four years without appreciable recovery in the employment-to -population ratio to what we used to think of as normal. And labor-force participation rate is now falling much much faster than we can justify from the demography. In long-run historical perspective, we are back to a labor force share of the population that we had in the late 1970s, when American feminism was at most only half-completed. An awful lot of those who are unemployed are long-term unemployed. Employers look at them askance when they apply for jobs. An awful lot more of the employment shortfall is people who have simply dropped out of the labor force, and I don't see what forces will push them to come back in. Thus we are likely to have a lot of slack in the American labor market--and a large shortfall of aggregate demand below potential supply--as far into the future as we can see.

If you are running a business, demand for your products will be low. But if you are ruining a business, it is also a fact that your margins are likely to be high. For businesses, these two effects more or less offset each other, and businesses wind up with operative cash flow they would have expected--and with lower borrowing costs because of low interest rates. This means the "new normal" is better for non-financial businesses than we thought we would see back in 2007. And the "new normal" is considerably worse for workers than the normal of 2007. On the labor side, it looks like jobs are going to be scarce for at least a decade to come. Few people will dare to ask for a raise. Few people will dare to quit.

That is the broadest big picture sketch of the new normal: slack demand, high margins, low interest rates.]

Mohamed El-Erian on the outlook;

Bill Gross, the billionaire founder of PIMCO on the squeezed middle class

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