The news from the front is not promising. Retailers battling in the trenches have endured their fourth consecutive month of falling sales. The headline figure tells a different story, of course, but that’s because the government’s car-scrappage scheme, which ended last week, had the effect of taking the ugly look off the overall numbers. Now that this incentive (which mainly benefited manufacturers in Germany, France and Spain) has ended, the true scale of destruction in the retail sector will become even more apparent.
The reduction in the Vat rate that applies to certain sectors (including newspapers), introduced on a temporary basis two days ago, is an attempt to kick-start spending activity. In truth, the reduction is so small as to be meaningless. The move was preceded by Michael Noonan’s exhortation to the public to spend, spend, spend, but the finance minister’s plea, directed at savers who are squirrelling away funds at record levels, will fall on deaf ears.
As a nation we have been transformed from Celtic tiger spendthrifts to depression-era skinflints. Those with cash are more interested in paying down their debts for fear of worse news to come. And who can blame them? Irish households, as economists note drily, continue to struggle with weak nominal pay growth, higher inflation and uncertainty surrounding employment prospects. And all that is an understatement.
The unemployment rate inched upwards in June to 14.2%, from 14.1% in May. That leaves 458,000 people on the Live Register. It is not as bad as the 14.8% recorded last November when the International Monetary Fund (IMF) came to town, but the trend is not positive. Worse, some 186,000 (40.8%) of those on the Live Register have been making claims for more than 12 months. They are now classified as “long-term” unemployed. Such was the scale of the losses incurred when the construction industry collapsed that positive job announcements are barely registering. Those jobs that have materialised are mainly in the service and export industries, but there is no sign of a manufacturing uptick with the potential to create a few thousand direct jobs, and many thousands more in support services.
The government needs a political win on the employment front. With its hands tied by the last administration, the options are limited. There is no possibility of raising funds for an incentive programme, so the cabinet is reduced to raiding what cash is left in the National Pensions Reserve Fund — about €5 billion — to fund its NewERA job programme. This move requires the approval of our new financial masters. Even if it is sanctioned, the legislative steps required to create the companies that will form the backbone of NewERA mean any jobs created will not be taken until next year.
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The government is betting the house on NewERA, but cannot afford to ignore the fundamentals. The priority is to undertake a root and branch overhaul of the unemployment system, to ensure the long-term jobless are given every incentive to find new opportunities. Ronnie O’Toole, an economist with a special interest in labour markets, outlined in this newspaper last month how the Danes work to get people off the unemployment register with so-called “labour activation” measures, including intense “eye-to-eye” contact between the unemployed and state agencies. The results have been impressive. It is a model our own government would do well to replicate if the growth in long-term unemployment is to be halted.