• SIX causes of high unemployment in Ireland since 2008.
• FIVE policy changes the Irish Government could introduce to
• Outline 3 Policies implemented by the Irish government to reduce
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.
THE collapse of Lehman Brothers, a sprawling global bank, in September
2008 almost brought down the world’s financial system. (The Print Edition, 2013)
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,
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)
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)
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)
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)
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)
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)
Five Policy Changes that the Irish
Government could introduce to reduce
• 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.
• The incentive will be payable, on a monthly basis, over
a two-year period and will provide two levels of
• 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
• 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
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
3. Incentives for foreign investment and getting
back into employment
• A change in the incentives for people to search for work
- this may require some reforms of the tax and
• Sometimes its financially better to stay on the dole
rather then get a job
• No languages barrier (US, AUS, UK)
4.Relocating for work within Ireland
• Help the unemployed move to areas of high
• 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
Source: Sweeney 1998, based on NESC (1990), and CSO Population and Migration Estimates (various years)
• The total number of Irish people who have
emigrated since 2008-2013 is 200,600. This is just
under a five year period.
– 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
• 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
• 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
• This is to help those who have a business idea but cannot afford to
set their idea into action
Changes to Jobseekers allowance for under 26 year
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.
• 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.
• 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.
Quarterly Figures for unemployment in
Change in employment and
unemployment for each quarter since
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: http://www.worldfinancialreview.com/?p=874
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: