Micheal Taft: A Steeper Climb

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From top: Grafton Street, Dublin partially re-opens yesterday; Michael Taft

Ireland may well find it more difficult to restore the jobs lost during the emergency lockdown than most other high-income countries. This is due to our over-reliance on sectors that are and will be the worst affected; not only because of the pandemic emergency but because of pre-crisis trends.

First up is the hospitality sector. Its reliance on foreign tourists and the impact of social distancing means it will restart slowly and may take over a year to recover. With permanent changes in consumer behaviour, there is a good chance it will never be restored to levels that existed prior to the crisis.

We can estimate the damage to the Irish economy relative to our EU peer group by looking at the importance of hospitality in employment.

Market employment primarily refers to private sector activity. Irish hospitality employment makes up 13 percent of total market employment, nearly twice as much as our EU peer-group average.

Of course, there’s a good reason for a high level of hospitality employment. For many foreign tourists, Ireland is a more appealing destination than Finland.

However, Austria has an even higher level of tourism but doesn’t rely as much on hospitality employment as Ireland, while France has tourism levels close to Irish ones (measured as tourists per capita) but with much lower jobs reliance in hospitality.

Whatever the reasons, the challenge of employment – or replacement employment – for a sector that will be hit hard over the medium term will be considerable.

We see a similar pattern with retail employment – another low-paid sector.

Again, Ireland leads the table although the gap with other countries is not as pronounced as with hospitality employment. The retail sector faces particular challenges beyond overcoming the lockdown legacy. Even before the crisis the sector was coming under pressure from online sales and automation.

Like hospitality, retail – especially non-food retail – is exposed to discretionary spending, so falls in disposable income will have a disproportionate impact. Factor in commercial rents in major urban areas, and we have a sector under pressure on a number of fronts.

It should be noted that not only are these sectors low-paid, they are also heavily gendered. Nearly 40 percent of women working in the market economy work in hospitality and distributive sectors. If these sectors take a hit over the medium term, it will be women who suffer disproportionately.

One doesn’t have to be an expert in labour market economics to see the potential problems this will throw up.

If, for instance, hospitality is slow to resume normal business and there is a permanent loss of jobs (there were 170,000 employed in the sector prior to the crash), then the competition for what jobs become available will be intense. We could see wages and working conditions being squeezed in a race-to-the-bottom.

This is all the more possible given the lack of sectoral or firm-level collective bargaining which could act as a bulwark against any degrading of working conditions (it’s noteworthy that the Tourism Recovery Taskforce has no employee representation).

Many will call for supply-side strategies to tackle this employment shortfall; that is, retrain and upskill workers previously employed in hard-hit sectors. That certainly would help. However, there are two problems with this.

First, Ireland doesn’t devote a lot of resources to active labour market policies. Many other countries spend more on labour activation than Ireland. Belgium, Denmark, Austria, France and the Netherlands all devote more than 2 percent of GDP on activation programmes (which include education, training and other supports). Ireland spends closer to 1.5 percent (in GNI*). That may not seem like much of a difference but it represents more than €500 million.

Second, supply-side strategies assume there will be no demand-side problems. Simply put, we can retrain, reskill and re-educate but if there are no alternative jobs to fill, unemployment will remain high while competition for what jobs are available will intensity.

There is no simple answer here. The Irish domestic enterprise base has been dogged by stagnating productivity, and while continued foreign investment is welcome (and needed) it is unlikely to fill the gap of a sluggish recovery in low-paid sectors – if only because of a sizeable skill mismatch.

The starting point is to recognise the over-reliance on low-paid, low-value added sectors for employment.

We need to refocus our productive economy on higher value-added activity and high-road employment. And we need to consider what we do if private domestic capital is not up to this task.

We either accept the need for substantial public capital intervention (in the form of public enterprise and other public-led business models). Or we resign ourselves to endemic and ongoing unemployment.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday.

Rollingnews

11 thoughts on “Micheal Taft: A Steeper Climb

  1. Cian

    One thing that would help is for us all to stay in Ireland for out holidays for the next 18 months – spend our holiday money within the State.
    Support your local shops and businesses.
    Buy Irish (where possible).

  2. Otis Blue

    The recent data release from the Parliamentary Budget Office was interesting on this point, noting the ‘relative stability’ of the income tax take in May. This arises as those in the sectors most effected by Covid-19, are generally lower paid and pay less income tax.

    https://data.oireachtas.ie/ie/oireachtas/parliamentaryBudgetOffice/2020/2020-06-04_fiscal-monitor-for-may-2020_en.pdf

    Belgium’s Government has announced some eye catching and innovative measures to stimulate the post Covid-19 economy. These include a €300 tax-free voucher from employers to spend in the worst affected sectors like culture, tourism and hospitality. These sectors will also benefit from a temporary reduction in the vat rate to 6%. Each resident will also be allowed 10 free journeys on Belgian railways between July and December, free bike passes included.

    https://www.premier.be/en/agreement-inner-cabinet-10-spending-power-support-measures-belgians-and-industries-difficulty

    It would be nice to think that our incoming Government could bring some new thinking to the table.

  3. Johnny

    Hi Michael great piece as always,Bloomberg has been highlighting the amount speculative office space about hit the market.

    “Meanwhile, offices continue to go up. About 340,000 square meters (3.7 million square feet) of new offices are expected to completed in Dublin between 2020 and 2021, according to broker CBRE. About 45% has been pre-let, while some of the rest is under negotiation, Marie Hunt, executive director for research at CBRE’s Irish arm, said.”

    With quarantine, site selection for US companies can now stretch from two days to two weeks, based on these numbers thats about 2 million square feet of empty space in the pipeline.

    https://www.bloomberg.com/news/articles/2020-06-05/as-virus-eases-ireland-sees-ghosts-of-2008-economic-crash

  4. Bruncvik

    From what I have seen in the news (and experienced myself as a parent of two small children), the childcare sector is in shambles, and we’ll be heading to single employed households. A lot more people are expected to stay home, minding their children, and those will usually be the lower income partners. This may take some pressure out of the job competition once the economy fully reopens. No consolation for people like me, who’d have to cut down on spending,

    Speaking of which: the government may be taking into account the drop in income tax receipts (and find that the decline had been relatively small because it’s mainly the low earners who were laid off), but they are not accounting in the consequent drop in spending, which may lead to a decline in corporate profits and VAT receipts.

    1. V'ness

      The knock on will eventually see Family Home mortgages that were intended to be serviced by two incomes come off track.

      This obviously will be softened by having some Income relief from not paying crèches – but long term even that will be minimal

      And Leo’s “Bank of Mum and Dad” will be found out

      1. Cian

        Which is one of the reasons that the prudent banks used to limit mortgages to 3.5 times one salary and 1.5 times the other.
        But that went out the window in the 90s

        1. V'ness

          Leo’s “Bank of Mum and Dad” advice to 1st time home buyers isn’t three years old Cian

          Just saying

          This is also a good opportunity to point out that Leo’s ” The Bank of Mum and Dad” also made a substantial contribution to childcare supports
          Just because it was free didn’t mean it had no value
          Or cost – especially now that it has been lost due to cocooning lockdown, or whatever is coming down the mountain on top of working families

          And jaysus only knows what clean up will be needed after Zappone

  5. Janet, dreams of spidercrab

    yep suddenly not having kids or grown up kids becomes one of the best parts of your CV

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