Economics and politics - comment and analysis

Did the Irish economy ‘recover’?

For several years by now, mainstream economists and Right wing policy-makers have been arguing that the Irish case constitutes proof positive of the ultimate correctness of austerity and labour market liberalisation policies. The economy of this small island was hit incredibly hard by the financial crisis of 2008/09. Fortunately, so goes the Right wing story, Irish politicians saw the light and implemented the standard neoclassical recipe: draconian austerity and the liberalisation of the labour market. These policies, the Right wing fiction continues, have been a gigantic success: by 2015 Ireland was the fastest growing economy in the EU. Ireland was also the fastest growing economy in the EU in 2016.

What is true about this? Did the Irish economy “recover,” to start with? According to Wikipedia, a ‘recovery’ refers to

“a phase of the business cycle following a recession, during which an economy regains and exceeds peak employment and output levels achieved prior to downturn. A recovery period is typically characterized by abnormally high levels of growth in real gross domestic product, employment, corporate profits, and other indicators” (see here).

According to the criteria of this definition, there can be no question: the Irish economy did not recover. Of course, no one is going to dispute that the overall situation in Ireland improved since 2012. However, if the Right portrays Ireland as the great example – and, even more ludicrous, as the great model to follow (as if this would be even possible) – one should take them at face value and present some simple figures to show the real nature of their miraculous “recovery.”

A 26% growth of Irish GDP

The figure of 26.3% growth of GDP in Ireland in 2015 is not a joke. It refers to something incredibly serious and destructive. The Irish GDP figure – made public by the Central Statistics Office in 2015 –  includes the balance sheets of all foreign companies that switched their base to Ireland. The process of switching tax domicile after a merger or acquisition is far from new. Ireland is an extremely popular end destination for these corporate manoeuvres because of its low corporate tax regime. Many examples of companies switching tax domicile can be given, such as Allergan (pharmaceuticals), Tyco (security systems), Medtronic (medical technology). The companies buy up a smaller Irish-registered rival and “invert” into an Irish corporate structure. A surge in aircraft imported into Ireland by leasing companies that send jets out on loan to airlines is also behind the Irish GDP growth. Lease operators based in Ireland account for about 20% of the global market, with sales of ca. 8 €bn. According to Michael Roberts, Apple paid 0.005% tax in Ireland in 2014. This is well-known. The EU Commission is trying to force Apple pay proper taxes in Ireland. The Irish government is very much against it (see here).

However, even without these tax switching adventures, the Irish economy grew by 7.8% in 2015 and by almost 7% in 2016 (‘as fast as the Chinese economy’ according to CNN (see here)). No other economy in Europe is growing faster than the Irish one. According to the Right, apart from this fabulous GDP growth, there has also been a dramatic fall in unemployment and a spectacular rise in consumption. Consumption rose by over 3% in 2015 and over 4% last year.  In one word, Ireland seems to be doing great. But is it really?


At the end of 2012 (Q4), unemployment stood at 14.2% in Ireland (see here). The total labour force was 2.143.500 – a figure which had been falling by 18.000 over the course of 2012. The Central Statistics Office estimated that 9.900 of this fall was the result of emigration. This figure is incomprehensible. In 2012, 89.000 people left Ireland – an increase of 2.2% with the previous 12 months (counted from April to April). At the time, this brought the total number of Irish people who had emigrated since 2008 to 200.600. There was, of course, also immigration (Irish abroad moving back and new migrants arriving), but net migration was clearly negative – and this is not counting foreign nationals leaving Ireland or arriving – and it was much bigger than 9.900 (see here).

Anyway, at the end of 2012, Ireland counted 294.600 unemployed (19.200 less than at the end of 2011). This brought the unemployment rate down from 14.6% to 14.2% in Q4 of 2012. Since 2007, there had been a 21% drop in full-time employment. This amounts to a loss of 359.000 jobs. Part-time employment had witnessed a rise of 15% (+ 56.500). Of the 309.000 who were unemployed, over 60% were long-term unemployed (see also here).

Inter linia, this long term unemployment made the traditional Left – the trade unions, the social democratic think tanks (such as NERI) and the Labour Party either agreeing with or, worse, arguing for labour market flexibilisation and activation programs for long-term unemployed. They should never have done it. I am not against activation in principle. The truth is that some of these programs were absolutely scandalous. Their undoubtedly very low efficiency has never been precisely determined. It is, in my opinion, one of the reasons why Labour was obliterated in the elections of 2015, getting only 7% of the vote.

Employment has been growing in Ireland since 2012. But this does not mean that all is well. The effects of the new growth are very disproportionate (see here). As Ciaran Nugent of NERI explains, of all Irish counties, Dublin is closest to its pre-crisis levels of employment, while the border and the Western regions are furthest from their peaks. Some 70.000 out of the almost 200.000 jobs created in Ireland since the outbreak of the crisis have been in Dublin. However, even at the end of 2016, Dublin has 19.000 fewer jobs than in 2007 (figure for Q3 2016) – a difference of 3%. The West and the border regions are down 10% and 11.5% respectively from their pre-crisis levels (Q3 2016) (see here). Employment in industry is still down in seven out of the eight NUTS regions compared with 2007 (see here on these regions). Wholesale/Retail is also yet to recover in seven out of the eight NUTS.


Figure 1: Map of Ireland (Source: Google Images).

Construction is down everywhere compared to 2007 (see here). This is, of course, to be expected after the massive housing boom. It is, however, also a political scandal. At the moment, notwithstanding the housing crisis (rents are rising all over the country because there are too few houses, while no social housing is being built), hundreds of thousands of houses are unoccupied or unfinished (and are being demolished). In 2015, 230.000 Irish houses were unoccupied. In 2014, 226 (23%) of the 992 estates remained completely unoccupied and were thus, in effect, “ghost towns,” notwithstanding the fact that homelessness was rising spectacularly (see here). The government, in its neoclassical wisdom, was unwilling to find resources to boost construction. When it finally did in 2016 and decided – half heartedly at best it seems – to stimulate construction, it turned out that the local governments were not cooperating, so apart from a steady rise in homelessness, nothing of substance is happening.

Overall, the Irish state had 129.000 fewer jobs in 2016 than in 2007, whilst experiencing a population growth of 200.000. As Nugent writes, even in the Mid-East region (Kildare, Meath and Wicklow), where unemployment was 2.9% in 2004 and which has the second lowest rate in the country in 2016, there are still 6% less jobs than in 2007 (see here). The problematic regions, the border (Cavan, Monaghan, Louth, Leitrim, Sligo and Donegal) have only gained about 6.000 jobs in the past two years and still has 25.000 jobs less than 9 years ago when unemployment was among the worst nationally (around 6% compared to the national average of 4.7%). In 2016 it is still nearly 10%. The South-West region with Cork City as the main population centre performs better, although employment loss was still over 13% (see here).

Industry is recovering particularly slowly in the Border region with 25% fewer jobs in the third quarter of 2016 than in 2007. Employment in Industry is still almost 20% lower in Dublin than in 2007. The Accommodation and Food services sector has about 15.000 more jobs than in 2007. How much are these jobs being paid? 10.000 of the 19.000 new jobs created in information and communication (IT) have been in Dublin.

Wages and living standards

Ireland, the Right wingers say, has one of the highest median hourly earnings in the EU and Irish living standards are high. Is this true? According to Ciaran Nugent from NERI, the Nevin Economic Research Institute, a trade union funded think tank in Dublin, it is not (see here). Nugent explains that when comparing standards of living, a focus on median earnings ignores the benefits that workers in other EU countries receive from employers’ social contributions. The contributions co-fund health care, social welfare, pension and disability. Even when adjusted for purchasing power, the measure does not capture the higher price Irish workers have to pay for these services.

Nugent shows that Ireland is below the UK and the EU-19 average in total labour costs. There exist also major differences per sector. For instance, in the two best performing sectors – ICT and pharmaceuticals – wages have consistently gone up post-crisis, whilst they have stagnated or dropped elsewhere. Relative labour costs are calculated by adding hourly employee compensation to social security contributions and employment taxes and subtracting any subsidies received for staff. Using this measure, Ireland is somewhere in the middle of the euro zone, slightly lower than the euro zone average or the UK and significantly below other small open economies such as Belgium and Austria (see here).

It is true that Ireland’s relative position in total hourly labour costs has been improving against both the UK and Euro zone since the financial crisis. For example, whilst in the Business Economy in the UK labour costs have increased by nearly €8 an hour since 2008 they have only risen by €1.50 in Ireland in the same period.

Nugent uses AIC to measure living conditions. According to Eurostat, “AIC consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are purchased and paid for by households, by government, or by non-profit institutions.” AIC is better adapted to describe the material welfare of households than GDP. According to this measure, Ireland is well below the Eurozone average in living standards. It is, in fact, still below 2008 levels of individual consumption, having been around the average for Eurozone members in 2008 (€19,200 down from €19,300 over seven years). According to Nugent, the euro zone average rose from €19.300 to €21.000 in this period. The figures for other small open economies such as Belgium and Austria have rose by around 10% in this time. In the UK, the level rose by over 5%. AIC for the average German is now almost 20% higher than in 2008 (€24,500) and even other ‘bailout’ countries such as Spain and Portugal have seen slight rises (see here). But not in Ireland. In the prime example of neoclassical success, AIC did not rise. Indeed, in Ireland in 2015 consumption per person was €100 lower than in 2008.

This, then, is what the Right is not telling about the Irish miracle: almost nine years now have passed since the bust. In Ireland, wages fell, consumption is lower than in 2007, employment is lower than in 2007, multinationals pay no tax and never in the history of the state have so many been sleeping on the streets – and this is a direct consequence of the neoliberal policies. That is the nature of the great neoclassical recovery in Ireland, regardless of whether this year or the next GDP increases with another 26%.