Th­escour­geof eco­nomic in­ac­tiv­ity

Belfast Telegraph - Business Telegraph - - Front Page - By Paul Macflynn, se­nior econ­o­mist, Nevin Eco­nomic Re­search In­sti­tute

Econ­o­mist Paul Macflynn says NI does have a jobs cri­sis, but it won’t show up in quar­terly sta­tis­tics

Un­em­ploy­ment in North­ern Ire­land reached a record low this month when the sea­son­ally ad­justed rate fell to 3.1% in the first quar­ter of 2018.

It is hard to avoid see­ing this statis­tic as any­thing but good news. How­ever, it is well known at this stage that the rate of un­em­ploy­ment in North­ern Ire­land is flat­tered by an el­e­vated rate of eco­nomic in­ac­tiv­ity which is likely con­ceal­ing the true scale of the prob­lem.

This hap­pens ev­ery month when labour mar­ket sta­tis­tics are re­leased.

Peo­ple cheer the lat­est drop in un­em­ploy­ment un­til they turn their gaze to the next col­umn in the re­lease.

Our prob­lem may not be the quan­tity of jobs avail­able in the econ­omy, but the qual­ity of jobs

The ab­sence of a de­volved govern­ment means that at least we are spared the spu­ri­ous press re­lease from a govern­ment de­part­ment at­tempt­ing to claim credit for some­thing which may not in fact be very good news.

Even dur­ing more up­beat eco- nomic pe­riod be­fore the crash in 2008, there was still a size­able gap of 5-6% in the rate of eco­nomic in­ac­tiv­ity between North­ern Ire­land and the rest of the UK.

It is one of the most oft cited weak­nesses in the NI econ­omy, yet we ac­tu­ally know re­mark­ably lit­tle about it.

Eco­nomic in­ac­tiv­ity means that a per­son does not have a job and is not ac­tively look­ing for one. Stu­dents, re­tirees and par­ents de­liv­er­ing child­care all fall into this cat­e­gory but so too do the long-term sick

A lot of re­search has tried to ex­am­ine why there is such large and per­sis­tent gap between North­ern Ire­land and the rest of the UK.

The legacy of con­flict ob­vi­ously plays a role, but there is no con­sen­sus on the scale or scope of that ef­fect.

Whilst it is im­por­tant that we find out why there is such a gap in the over­all level of eco­nomic in­ac­tiv­ity, it is also im­por­tant to look at the short-term trends. North­ern Ire­land’s eco­nomic in­ac­tiv­ity may be per­sis­tent but it is also volatile.

The rate of eco­nomic in­ac­tiv­ity was 26.3% at the start of 2017 and reached a high of 29% in Oc­to­ber. That’s a sig­nif­i­cant in­crease and by the first quar­ter of this year, the rate had al­ready dropped back to 28%.

Some­times swings in eco­nomic in­ac­tiv­ity are matched by op­pos­ing swings in un­em­ploy­ment. If a per­son who was un­em­ployed stops look­ing for a job, they are then re­clas­si­fied as eco­nom­i­cally in­ac­tive. How­ever, this isn’t al- ways the case. Some­times, quite wor­ry­ingly, peo­ple move from em­ploy­ment straight into eco­nomic in­ac­tiv­ity.

In re­al­ity we have very lit­tle in­for­ma­tion about the peo­ple who are clas­si­fied as eco­nom­i­cally in­ac­tive.

We know what their sta­tus is when we count them, but we don’t have nearly enough in­for­ma­tion about how they got there.

This is quite im­por­tant from a pol­icy point of view. If a per­son clas­si­fied as eco­nom­i­cally in­ac­tive was pre­vi­ously un­em­ployed, pol­i­cy­mak­ers would be for­given for think­ing that the prob­lem is a lack of jobs.

How­ever, this may not be the case for a per­son who moves from em­ploy­ment straight into eco­nomic in­ac­tiv­ity.

The root of this prob­lem may lie in other trends in the wider labour mar­ket, and a quick scan of other in­di­ca­tors points to part of our prob­lem. The most re­cent in­crease in eco­nomic in­ac­tiv­ity has been driven by males. The rate has in­creased by al­most 5%, from 19% in 2016 to 24% in the last quar­ter.

Wages are ex­pe­ri­enc­ing a slow re­cov­ery in North­ern Ire­land, but this pos­i­tive trend has not been ex­pe­ri­enced equally. There was a 2.6% fall in wages for male part­time work­ers in the pri­vate sec­tor, which amounts to a 5.1% de­cline when ad­justed for in­fla­tion.

Much of the in­crease in male em­ploy­ment dur­ing the re­cov­ery was driven by part-time jobs.

What we could be see­ing here then is a lot of men in part-time, low-paid em­ploy­ment drop­ping out of the work­force be­cause it is sim­ply no longer eco­nom­i­cally vi­able for them to re­main at work. In this sense, our prob­lem may not be the quan­tity of jobs avail­able in the econ­omy, but the qual­ity of jobs.

This is why fo­cus­ing on sim­ple sta­tis­tics like the un­em­ploy­ment rate can be so dan­ger­ous. North­ern Ire­land does have a jobs cri­sis, but it won’t show up in quar­terly labour mar­ket sta­tis­tics. Pol­icy-mak­ers need to fo­cus on the type of em­ploy­ment we are cre­at­ing and what kind of econ­omy that it cre­ates.

The last Pro­gramme for Govern­ment con­tained a com­mit­ment to cre­ate a Good Jobs In­dex. This would be­gin to re-fo­cus pol­icy to­ward the real weak­nesses in North­ern Ire­land’s econ­omy.

Pol­icy-mak­ers need to fo­cus on the stan­dard of the jobs be­ing cre­ated

@Pmacf_neri

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