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  • 1. Unemployment and Dainis Slishans Louise Brown
  • 2. • SIX causes of high unemployment in Ireland since 2008. • FIVE policy changes the Irish Government could introduce to reduce unemployment. • Outline 3 Policies implemented by the Irish government to reduce Unemployment
  • 3. US Financial Crisis The US crisis was the first to emerge. The slowdown in real estate prices and the consequent downturn experienced after 2006 led to uncertainty in the value of the mortgage pass-throughs and related securities. (a, Connor, G. et. al. 2010, p3) The US crisis emerged from a mis-understanding of the liquidity and credit risks associated with an abundance of complex, relatively new financial products. The US crisis also precipitated a global liquidity crisis. (b, Connor, G. et. al. 2010, p4) THE collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. (The Print Edition, 2013)
  • 4. Irish Bank Crisis The global liquidity crisis following the Lehman Brothers collapse had severe repercussions for Irish financial institutions, who found it difficult to roll over their enormous foreign borrowings. Their problems were compounded by the rapidly deteriorating credit quality of their loan books, due to adverse conditions in the domestic property market. ( c, Connor, G. et. al. 2010, p4) The banks got into trouble because they got caught up in the mass psychology of an unprecedented property bubble – the steepest and longest of the several national property bubbles of the late 1990s and early 2000s around the world. Banks had not been central to the financing of the export-led Celtic Tiger period of the Irish Economy which ended about 2000 (Honohan, 2006). However, they began to increase the share of their assets in property-related lending from less than 40 per cent before 2002 to over 60 per cent by 2006. (HONOHAN, PATRICK, 2009)
  • 5. Figure 1: Bank lending to households and non-financial firms as a percentage of GDP for Eurozone economies and the UK, 1997 and 2008. (Morgan K. 2009)
  • 6. Irish Property Bubble The Irish housing boom began as a rational response to increasing demand. Ireland experienced net inward migration, and there also was a desire by the indigenous population to upgrade the existing housing stock in response to increasing per-capita income levels. The main factor behind these developments has been the devastating boom-bust cycle in the Irish property market. Since the property boom was financed through aggressive lending by the Irish banking system, the decline in property prices and the collapse in construction activity have resulted in severe losses in the Irish banking system. In turn, this has contributed to the economic crisis through a credit squeeze and the fiscal crisis, both directly through the costs of recapitalising the banking system and indirectly through the loss of asset-driven revenues. (Lane, 2013)
  • 7. High Replacement Ratio High replacement rates are often cited as contributing to the persistence of unemployment. Current unemployment policy needs to keep people close to the labour market so that when employment opportunities arise they are in a position to take them up. It needs to pay particular attention to the risks of long-term unemployment. (Interdivisional Group on Growth and Employment, 2010)
  • 8. (Niamh O’Grady, 2009)
  • 9. Cyclical Unemployment The economy is in recession and this brings about a fall in the aggregate demand for labour and a rise in cyclical unemployment. After construction market collapsed in 2008 the largest decreases in full-time employment occurred in the Construction (-84,700), Industry (-33,000) and Wholesale and retail trade; repair of motor vehicles and motorcycles (-28,500) sectors in 2007-2008. (Finfacts Team, 2010)
  • 10. Tax Wedge Focusing on supply, tax wedges can theoretically have a positive or negative influence on labor force participation, depending on competing income and substitution effects. Textbook treatments typically regard the alternative to work as leisure, such that the income effect allows one to enjoy more leisure. The presence of unemployment benefits and/or binding minimum wages can make the effective labor supply curve more elastic for low-wage workers. Wedges can affect participation in the labor market but, holding recorded activity in the labor market constant, they can also affect the mix of employment and unemployment. In situations where wages are bargained over, higher tax wedges make the outside option – such as unemployment or work in the informal sector while registering as unemployed – more attractive. Unemployment benefits affect the incentives for someone to search for work. If they subsidize costly search activities, the effect can be positive. If they encourage searchers to decrease their work effort or hold out for better paying jobs, the effect on equilibrium employment is negative. (Alberto Behar, 2009)
  • 11. Five Policy Changes that the Irish Government could introduce to reduce unemployment 1. JobsPlus • Enda Kenny, Eamon Gilmore, Minister Joan Burton and Minister Richard Burton together launched JobsPlus, • Employer incentive scheme. • Operated by the Department of Social Protection • The scheme will see the State cover approximately €1 in €4 of the typical cost of hiring someone who has been on the Live Register for 12 months or more. •
  • 12. 1.JobsPlus Ctd. • The incentive will be payable, on a monthly basis, over a two-year period and will provide two levels of payment: • a payment of €7,500 over two years to the employer for each person recruited who has been unemployed for between 12 and 24 months; • €10,000 over two years to the employer for each person recruited who has been unemployed for more than 24 months. •
  • 13. 2.Run Courses: • Improving skills and reducing occupational immobility • Policies should provide the unemployed with the skills they need to find re-employment and improve the incentives to find work. improvements in education and training will increase their chances of employment • Keep reskilling them in the departments that have a high demand for employment
  • 14. Run Courses Ctd. • FAS run courses for people who are on the dole in order to upskill them so they are available for more work then they could have been before taking the course. All courses are paid for and the person on the course also gets their weekly dole money. “Back To Education” •
  • 15. 3. Incentives for foreign investment and getting back into employment people • A change in the incentives for people to search for work - this may require some reforms of the tax and benefits system • Sometimes its financially better to stay on the dole rather then get a job • No languages barrier (US, AUS, UK)
  • 16. Incentives Ctd.
  • 17. 4.Relocating for work within Ireland • Help the unemployed move to areas of high employment • Provide sufficient housing for workers • Help make the move as easy as possible • Many employers already run similar schemes, but government should look into this a cheaper option then high numbers of people in Ireland on the dole
  • 18. 5. Emigration • Source: Sweeney 1998, based on NESC (1990), and CSO Population and Migration Estimates (various years)
  • 19. Emigration Ctd. • The total number of Irish people who have emigrated since 2008-2013 is 200,600. This is just under a five year period.
  • 20. Emigration Ctd. – Incentives to encourage youth to stay in Ireland should be thought of. • Increase job seekers allowance • Lower costs for 3rd level education to increase numbers of skilled and qualified workers in Ireland • • •
  • 21. Budget 2014: Reducing Unemployment • Local Enterprise Office fund up from €15m to €18.5m • This should increase the amount of young entrepreneurs that receive help from the Local Enterprise Board leading to a larger number of new businesses hopefully leading to employment within local areas. • •
  • 22. Budget 2014: Reducing Unemployment • New scheme announced that will grant an exemption from Income Tax for unemployed people who set up their own business. • • The exemption will apply on income up to a maximum of €40,000 per annum and will last for a period of two years. To qualify – the person must set up a qualifying (As stated on their website), unincorporated business and have been unemployed and claiming benefits for a period of at least 15 months prior to establishing the business. • • This is to help those who have a business idea but cannot afford to set their idea into action
  • 23. Budget 2014: Reducing Unemployment Changes to Jobseekers allowance for under 26 year olds: o o Currently any claimant aged 18 to 21 gets €100 a week and those aged 22 to 24 get €144 . The full rate of €188 a week is paid to those aged 25 or more. From January 2014 the €100 a week lower rate will be paid up to the age of 24 (extended by 3 years) . Those aged 25 will get €144 and the full rate of €188 will not be paid until claimants reach 26.
  • 24. Budget 2014: Reducing Unemployment • From Jan 1st 2014 – claimants aged 18-24 years (without children) will get €100 per week unless they are an existing claimant on a higher rate, in which case their rate will not go down. • From Jan 1st 2014 all claimants aged 25 (without children) will receive €144 a week unless they are an existing claimant on a higher rate, in which case their rate will not go down. This weekly rate will increase to €188 when they reach 26 years of age. •
  • 25. Budget 2014: Reducing Unemployment • • • Just for comparison – the Jobseekers allowance in the UK is £56.80 (€68) a week for under 25′s and for those aged 25 or over it is £71.70 (€86) a week. •
  • 26. Quarterly Figures for unemployment in Ireland
  • 27. Irelands Unemployment rate:
  • 28. Change in employment and unemployment for each quarter since 2005-2011
  • 29. Bibliography Alberto Behar, AUCO Czech Economic Review 3 ,Tax Wedges, Unemployment Benefits and Labour Market Outcomes in the New EU Members, (2009) 81–82 (a, b, c,)Connor, G., Flavin, T., & O’Kelly, B. The U.S. and Irish Credit Crises: Their Distinctive Differences and Common. March 2010, p3-4. Finfacts Team. (2010, March 24). Retrieved December 3th, 2013, from Finfacts: HONOHAN, PATRICK, “To What Extent Has Finance Been a Driver of Ireland’s Economic Success?” ESRI Quarterly Economic Commentary, (December 2006): pp. 59-72. Honohan Patrick, Policy Paper, Resolving Ireland’s Banking Crisis, Trinity College Dublin and CEPR, Summer 2009, p209 Lane, P. R. (2013). Retrieved December 5th, 2013, from The World Financial Review: Morgan Kelly, University College Dublin, The Irish Credit Bubble, (December 2009), p2 Niamh O’Grady, SOCIAL WELFARE HOW IRELAND COMPARES IN EUROPE, September (2009) The print edition. (2013, September 7th ). Retrieved December 7, 2013, from The Economist:
  • 30. • • • • • • • • • • • • • • • • • •