The geography of Irish joblessness

The relevance of ‘Saving the Heartland’ for Irish regional policy

Apr 5, 2018 · 5 min read

In a recent Brookings paper Larry Summers, Ed Glaeser and Benjamin Austin go over the evidence for place-based policy in the US. It is worth reading, and linked below.

They discuss three justifications for place based interventions, despite the mixed evidence on the effectiveness of some place based policy. These are — agglomeration economies, spatial equity and larger marginal returns to targeting ‘social distress’ (driven by joblessness and economic decline) in areas where it is most concentrated. They conclude that the strongest justification is the third.

From a policy point of view they look at employment subsidies and show that flat rate national subsidies may have a stronger impact in areas with lower wages. They then go further to show that varying the generosity of employment subsidies based on local joblessness levels could actually increase the employment impact of the subsidy per dollar spent.

In other words, you get more bang for your buck by targeting money not just at long-term unemployed people generally but by targeting those people in areas with generally high unemployment.

Their pretty striking takeaway is this:

The enormous social costs of non-employment suggests that fighting long-term joblessness is more important than fighting income inequality. Stronger tools, such as spatially targeted employment credits, may be needed more in West Virginia than in San Francisco.

Relevance for Irish policy

The paper has relevance from an Irish point of view. Ireland’s joblessness and the concentration of joblessness in households in Ireland has been amongst the highest in Europe over the past 20 years or more. This was equally the case during the boom.

There is also a significant spatial element to joblessness in Ireland. The excellent ‘Rural Economic Development in Ireland’ report by the WDC and Teagasc shows rural towns, in particular, have major issues when it comes to joblessness . The same phenomenon is also very evident in areas of our cities.

Figure 1 below shows the distribution of the 200 largest Irish towns and cities in relation to joblessness (non-employment among the adult population excluding retirees and students). What is clear is the divergence between different towns, with rates varying between 16% and 51% (!).

Figure 1

The long-list below isof the 15 best and worst towns. Two in my home county, and a notable over-representation of the city adjacent amongst the best performers.

Some speculation on drivers of joblessness

What follows is really indicative rather than conclusive in any sense. So, treat it as ‘work under construction’. Below are a few bits of analysis based on Census 2016 data which might point to the drivers of these big geographical differences in joblessness.

Figure 2

Messing around with scatter charts on a lot of Census variables at town level the real relationships with joblessness that stand out are not with recent loss of mid-skill jobs, the levels of construction activity during the boom nor necessarily economic strength of the town (as measured by net commuting flows). The strongest uni-variate and multivariate relationships are actually more long-term structural drivers such as levels of education and family type (particularly the concentration of single parent families in a town). Divergence in social institutions at a local level seem to matter in the labour market (which is in line with previous work of mine at a national level).

To the extent many of these root causes are likely to have developed over the long term, and are thus less amenable to quick policy intervention, there seems to be a lot of path dependency at play.

Figure 3

As I’ve said this requires more work, with better use of measures of the strength of the local economy, hard infrastructure, and more attention to geography. It is a complex topic.

Improving employment subsidies

If we were to take the findings of ‘Saving the Heartland’ as being transferable to an Irish context the obvious place to start would be our own main employment subsidy scheme - JobsPlus.

JobsPlus is an incentive which gives a direct wage subsidy to employers who take on the long term unemployed. It replaced a plethora of other subsidies such as Revenue Job Assist and the Employer Job Incentive Scheme and has the advantage of being much more targeted (& significantly cheaper) than its predecessors.

Under the scheme employers receive a grant of €7,500 or €10,000 paid to the employer over a 24 month period, depending on how long the employee had been on the live register. The most recent data shows that there were 4,100 people taken on under the scheme in 2016 at an annual cost of about €20 million.

Of those employees who found work under the scheme just over 60% had previously been unemployed for 24 months or more, and younger workers were over-represented. In theory, there is a good chance is has helped many younger workers avoid the permanent damage of long-term unemployment . We will know for sure after a counterfactual evaluation, currently underway, is completed.

Going forward, an IGEES review of State employment supports in 2017 suggested that :

Deadweight is likely to increase in an improved economy and increased targeting of the scheme may be required to counteract this inefficiency, e.g. by targeting the scheme at those with longer periods of unemployment, e.g. 3+ year cohort.

Figure 4

Targeting the scheme by limiting it to those unemployed for three years or more certainly makes sense if the elasticity of their employability to demand in the economy is significantly lower than that of other long-term unemployed people. The evidence since 2014, while far from conclusive, doesnt seem to suggest it is.

Instead it might be worth considering the findings of the study on the ‘Saving the Heartland’ and looking at a different route to targeting the very long-term unemployed — by location.

This could be achieved by keeping the current system in place when it comes to the overall levels of support but reducing the subsidy for persons living in areas with stronger local labour markets. These savings could then be used to increased subsidies to those in weaker labour markets. It would make sense to classify this by the social welfare office at which a potential workers signs on.

It requires more thought, but it might be worth a try.

Gerard Brady

Written by

Economist. Views personal, rambling.

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