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News : Irish Economy Last Updated: Feb 13, 2015 - 2:38 PM


Irish Medium-Term Economic Strategy 2014-2020: Where will 300,000 net new jobs come from? - - Part 8
By Michael Hennigan, Finfacts founder and editor
Dec 19, 2013 - 6:33 AM

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Irish Medium-Term Economic Strategy 2014-2020: Enda Kenny, taoiseach, said on Tuesday at the launch of the "strategy" document that all the 330,000 jobs lost since the economic crash in 2008 will be replaced, to return employment to above 2.1m in 2020. So if we allow for jobs created in the past year, the big question is: Where will 300,000 net new jobs come from?

When the foreign-owned internationally tradeable sector hit a peak in 2000 as a significant job creator, it was replaced with property as the jobs engine.

Where is the new jobs engine?

The ministerial jobs publicity machine with announcements spaced out each week and the media alerted for 'door step' interviews with Minister Richard Bruton, does work as intended by giving an impression of lots of jobs coming on stream. The reality is more somber.

One useful Reality Check for Enda Kenny's aspiration is to look at the period 2001-2007 with an unprecedented rise in domestic demand fuelled by rising population, incomes and credit.

The overall workforce grew by over 400,000 while there was NO jobs growth in the internationally tradeable sectors: 10,000 jobs were added in indigenous firms while a similar number of jobs were lost in foreign-owned firms.

The indigenous firms had an export ratio of about 40% - - meaning the majority of output was sold locally but few jobs were added.

In the period 2000-2012, the headline figures show that there has been a jobless exports boom.

While job numbers in both the foreign-owned and indigenous internationally tradeable sectors are below the 2000 level, total headline exports grew at current prices by 71% in the period 2000-2012 and at constant prices by 59%.

Foreign-owned sector: In firms supported by State agencies, there was total employment of 168,000 in 2003, 171,000 in 2007 and 168,000 in 2012.

In firms supported by IDA Ireland, the main inward investment promotion agency, there were 152,000 employed in 2007 and 153,000 in 2012.

The normal pattern is that for gross jobs added, at least half of that total are lost and IDA Ireland's 2010 Horizon 2020 plan had a target of 105,000 new jobs added in the five-year period 2010-2014.

The target total direct jobs target was 62,000 before job losses and by end 2013, a net 21,000 jobs will be added compared with the deep recession year of 2009.

New projects tend to be small compared with the manufacturing projects in the 1990s and because of the demand for multilingual skills, more than half the staffs of companies such as Apple and Google are from overseas.

In the Horizon 2020 plan, IDA Ireland had a target of attracting 20% of greenfield projects from emerging economies. It appears that hasn't been met and Chinese companies tend to acquire existing European companies with local markets rather than starting from scratch.

The reputation of Dublin's International Financial Services Centre has plummeted in recent years and the model needs a retooling for a changed global market.

FDI will remain important for the Irish economy while changes in international tax rules in coming years will impact the attractiveness of Ireland as a location for some firms.

While net jobs may continue to be added, FDI will not return to its jobs engine status of the 1990s.

Indigenous exporting firms: The impact of new export markets would not be significant by 2020.

As we noted in this series, building up a presence in emerging markets is only realistic for big firms and Ireland has not many of them.

All employment in State agency assisted Irish-owned firms was 167,000 in 2003, 186,000 in 2007 and 169,000 in 2012.

Two-thirds of private sector jobs are in non-exporting traditional sectors.

The performance of the indigenous sector has been poor for decades and changes such as improved process innovation require more than the current time horizon to show results.

Almost half food and drink exports go to the UK and in 2012, the average hourly UK labour cost (including employer social security) was £17.8 or €21.60 [pdf] compared with €29.1 in Ireland, €30.4 in Germany and €39 in Sweden.

The EU average in 2012 was €23.4.

Construction: Just over 8,000 new house completions are expected in 2013 while according to the CSO there were 104,500 employed in construction in Q3 2013.

Direct construction employment peaked at 282,000 in late 2006 and DKM Economic Consultants estimated that 416,000 were employed  in property-related activities in Q2 2007 -- 19% of the workforce.

In 1994, 1995, 1996 and 1997, a period when FDI (foreign direct investment) inflows were strong, resulting in demand for commercial property, while public funded civil engineering projects were relatively stable compared with rising GNP, new house completions rose from 27,000 in 1994 to 39,000 in 1997.

House completions peaked at 93,000 in 2006.

In 1994, 1995, 1996, 1997, direct employment in construction was at 91,500, 96,600, 100,800, and 110,400.

The current level of employment at 104,500 seems high and there will be growth in coming years as house completions/ commercial projects rise but there isn't going to be a surge in FDI that would trigger a jump in commercial investments while budgetary constraints will limit the upside in the civil engineering sector.

Agriculture, fisheries, forestry: There was an estimated 111,000 employed in the sector in Q3 2013 compared with 115,000 in 2007.

Ireland’s dairy sector will create 15,0000 jobs after EU milk quota restrictions end in 2015, Ciaran Fitzgerald, an economist, said last year at the National Dairy Council conference.

There is potential and Carbery in West Cork, owned by four local co-operatives, shows what could be achieved.

However, the sector depends on a small number of productive farmers.

Farm incomes are forecast to rise by 13% next year, mainly because the price of feed and fertiliser is expected to fall, according to Teagasc’s annual review and outlook.  Trevor Donnellan, a Teagasc economist, has said that preliminary figures suggested the average family farm income fell by 1% this year to €25,679.

Average farm income is very dependent on CAP welfare while there are said to be more farmers who are over 80 than under 35 years of age.

Fonterra of New Zealand, the world’s largest dairy exporter, has said it can’t increase milk-powder production quickly enough to meet demand from China and other emerging economies.

The price of nonfat-dry milk averaged $1.9363 a pound earlier this month, the highest since November 2007, the US Department of Agriculture said in a report. Bloomberg says prices climbed 27% this year.

Other sectors: Against the backdrop of an international recovery, the recent improvement in the tourism sector shows that there is further potential for growth.

There were 138,000 employed in 'accommodation and food service activities' in Q3 2013 compared with 113,000 at end 2010 and 132,000 in 2007.

The health sector already has added over 20,000 employed to total 244,000 in Q3 2013, compared with 2007 but with public spending remaining subdued, the public sector, retail, wholesale, transport, local financial services and domestic business services will not generate a surge in jobs.

Finfacts: 2014 - - Jobs in Ireland's foreign-owned sector in 2013 below level in 2000

Finfacts: 2014 - - Full-time jobs in indigenous exporting firms in 2013 below 2000 level

Conclusion

In Part 3 of our series we looked at the current government's continuation of its predecessors' delusions of putting the aspiration to create a 'world class knowledge economy' at the heart of enterprise policy. It is a search for a Holy Grail that will remain elusive.  We also said that high growth firms are not typically in the high tech sector.

Innovation is important and is a lot more than discoveries in a laboratory but we cannot afford to bet the house again on finding a philosopher's stone.

McKinsey Global Institute said a 2010 report: "While many policy makers see innovative technologies as the answer to the challenge of job creation, our analysis indicates that governments are likely to be disappointed in such hopes.”

Absent an international boom bigger than the pre-recession one, the target of creating 300,000 net jobs by 2020 could be politely termed brave or simply unrealistic.

When outside of the property boom, no jobs were created while a surge in exports was jobless, why would we have a jobs surge against a more difficult backdrop?

Half the target would be an achievement.

Should it be a surprise that the Government decided to produce a brochure rather than a strategy -- that would require dealing with realities rather than fairytales?

Finfacts: Irish Medium-Term Economic Strategy 2014-2020: Exports to plunge by €50bn - Part 1

Irish Medium-Term Economic Strategy 2014-2020: FDI, SMEs, New Normal - Part 2

Irish Medium-Term Economic Strategy 2014-2020: Innovation and entrepreneurs? - - Part 3

Irish Medium-Term Economic Strategy 2014-2020: Exports to Japan and emerging markets -- Part 4

Irish Medium-Term Economic Strategy 2014-2020: Change comes ever so slowly in Ireland -- Part 5

Irish Medium-Term Economic Strategy 2014-2020: Government says expect aspirations not strategy - - Part 6

Irish Medium-Term Economic Strategy 2014-2020: Government publishes brochure not strategy - Part 7

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