Earnings data: change or no change?

The CSO have published their latest release of the Earnings Hours and Employment Costs Survey (EHECS). The data give an insight into employment numbers and average earnings across the Irish economy. The survey began in Q1 2008 and replaces a number of sector surveys ran by the CSO.

The simplest comparison is between average weekly earnings in the public and private sectors as shown in the following graph.
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The Blame Game

The Consultative Consumer Panel published their Submission on the Performance Review of the Financial Regulator 2008/2009. The 12-page report can be read here. It is a "hard hitting" report but that takes aim at the performance of the Financial Regulator and it's now departed Chief Executive, Pat Neary. Mr. Neary, it seems, is the one to blame for virtually all the ills in the economy. The report states:

The Financial Regulator's failure to ensure sound financial services providers has hurt consumers hard. They have suffered from negative equity on their homes, falling share prices, poorer returns on pension funds and the lack of availability of credit. The cost of bailing out the banking system has contributed to rising unemployment, wage and social welfare cuts and higher tax rates. Those negative effects have been only partially offset by lower mortgage rates, adjusted asset prices and higher deposit rates.

Is your home in negative equity? It's Pat Neary's fault.
Has your investment portfolio or pension fallen in value. It's Pat Neary's fault.
Are you finding it difficult to get a loan. It's Pat Neary's fault.
Have you lost your job? It's Pat Neary's fault.
Has you Social Welfare been cut? It's Pat Neary's fault.

It is clear there was huge problems in the Financial Regulator's office but this 'blame game' or point scoring approach is of little use. Also if you actually look at the points the report makes under it's five key headings it is clear that most have them relate to consumer banking and have little to do with the banking crisis we have now.

The consumer banking sides of our main banks are incredibly healthy. There are some issues with the information provided and 'advice' given to consumers but consumer banking did not lead us into this mess - property development and investment banking did that. What we actually need is not a Consultative Consumer Panel Report but a Consultative Investor Panel Report.

In the first six months of 2009 AIB posted an operating profit of €1.7 billion. For the first half of it's financial year BOI recorded an operating profit of €787 million. These figures are huge relative to the value of the banks.

Looking at yesterday's closing share prices we see that AIB has a market capitalisation of about €1 billion and BOI of about €1.2 billion. If you borrowed to buy these banks you would have the loans paid off with less than 12 months operating profit from the banks and would have essentially gotten the companies for free.

Obviously, these banks have huge problems on their balance sheets with huge amounts of their assets (issued loans) worth only a fraction of their book value. The banks' problems are not on the consumer side. They are on the investor/developer side. This nice little video sums it up but note that it is investment loans that are the main problem in our case.

The banking crisis here is different to that in the US which was primarily caused by sub-prime mortgage lending in the consumer sector. The size of this problem has consequences across the financial world. Here it is explained with champagne flutes so loved by our former banking and property development high-flyers.

The report published by the Consultative Consumer Group is useful but some of their shots go 'out-of'bounds'. Consumers are being hurt by the financial and economic situation as today's figure on mortgage arrears reveal. However, we have got to be careful where we are laying the blame, or more accurately, how we are laying the blame.

Currently 'the only show in town' to find our way out of the banking crisis is the National Asset Management Agency (NAMA). The only loans the NAMA will be looking at are investor/developer loans. The €4.8 billion in residential mortgages in arrears of more than three months or the residential mortgages in negative equity will not be part of the NAMA solution.

The investigation that Prof. Patrick Honohan is calling for into the banking sector in Ireland will be paying little attention to consumer banking, if the type of investigation he is looking for is set up. We got snippets of this in Primetime Investigates on RTE last night. Tweet

People respond to incentives - the rubbish edition

RTE report on the move today by Dublin City Council to abolish the waiver of domestic waste charges that was in place for low-income households. These households will still be exempt from playing the standing charge, currently €96 per annum, and will get four free lifts per year but will have to pay a charge when they put out their bin for collection after that.

The charge per lift is €6. The average household not on a waiver puts their bin out 16 times a year. A household that puts their bin out 60% of the time (16 times a year) will incur a charge of €6 x 12 = €72. Why did the Council seek to have this change introduced? City Manager John Tierney provides the answer.

Mr Tierney added that the waiver scheme had not been an incentive to minimise output as those on waivers had been putting out almost double the amount of refuse as other households.

Those that did not have to pay a charge per bin lift put their bin out for 100% of collections (26 times a year). Those that have to a pay a charge per use put their bin out for 60% of collections (16 times a year). More here.

People even respond to rubbish incentives. Tweet

Research Report Card

Forfas have recently released a study on the output of Irish researchers called "Research strengths in Ireland: A bibliometric study of the public research base" and can be read here. The press release for the report paints a positive picture.

A comprehensive study of publicly-funded research performance has shown that Ireland has improved in terms of the volume and impact of its research. Ireland ranks 8th on the impact of research publications within a group of 20 comparator countries.

The study was conducted on behalf of Forfás and the Higher Education Authority (HEA) by Evidence Ltd., part of the Thomson Reuters Group. It shows that Ireland is punching above its weight in terms of the impact of its research.

The report goes through output and impact factors in a number of key research areas at both a national and institutional level. Here, we will consider the output and impact of business research in Ireland.

The performance of Ireland in business research is pushed upwards by a jump in 2007 to 123 papers that was well above the 71 paper average of the previous five years. It is not certain that this higher level will be maintained. Even with this increase Ireland still ranks only 17th of the 20th countries included.

Output may be low but the citation impact (measured as citations per paper) seems stronger

Ireland’s ranking within the comparator group has moved up to 5th, but this position reflects other poor performances relative to world average by a number of comparator nations rather than any great strength in Irish research.

Looking at the total number of research papers by institution across all areas.

The three biggest Irish institutions, UCD, TCD and UCC show strong growth in research output over the ten year period. This growth however has not been replicated in the business area in UCC.

[Note: The section of the report that looked at 20 "project" research areas provided research output data for an area called "economics and business". As with the statistics above the section of the report that looks at institutional performance reports statistics for "business". Economics does not seem to form part of the institutional comparisons. The total number of papers in "economics and business" from 2002-2007 was 568 or an average of 95. There were 344 papers included in "business" from 2003-2007 for an average of 69 a year. It is not clear why a "project" research area is larger than a "main" research area or whether Economics forms part of the "business" main research area.]

UCC is the only institution in Ireland that has seen a drop in the output of business papers. For the five year period 2003-2007, UCC's output of business reserach was just 16% of that of UCD. UCC produced an average of 4.6 business research papers per year. For the entire sample UCC produced 5375 papers with only 250 or 4.6% of these in the business area.

UCC is in a group with NUIM, DCU and UL producing about 5 business research papers per year. NUIG, TCD and, in particular, UCD all having higher business research outputs. The report notes that "Business output volume is still very low, with most institutions producing barely a handful of papers per year. TCD is not increasing its output, so the growth at UCD marks it out as the centre for business research rather than just a leader in a more general growth pattern."

The citation impact of UCC business research is extremely low and is by far the worst of the institutions included. The report again emphasises the performance of UCD noting that "UCD is the only institution with significant volume and growth and its impact is now rising above world average. It is notable that TCD has slipped downwards over several years."

UCC is nowhere.

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They think it's all over....it is not

The CSO have released the National Accounts for the third quarter of 2009. The figures reveal that seasonally adjusted GDP rose by 0.3% in the quarter and that technically Ireland is now out of recession.

The first issue to note is that these are provisional estimates. When the GDP figure for Q2 was first released in September the published change was zero. The revised figures indicate that GDP in the second quarter GDP fell by 0.6%. The Q3 figure from yesterday may also be revised downwards. Here is a graph of the quarterly GDP figures for the last five years.


Undoubtedly the recession is "bottoming out" but it is still too early to call it over and we still may have a bit of falling to go. Why? All the elements that make up the GDP figure are declining. All that has changed is the relative pace of these declines that gives the anomaly of a GDP increase.

GDP in make up of private consumption expenditure, firm investment expenditure, government expenditure and the balance of exports and imports. We have

GDP = C + I + G + (X - M)

The following table has the quarterly growth rates for the components of GDP for the past four quarters (table taken from here).


All of the components of GDP are falling and all of these declines have accelerated since the second quarter. The reason GDP has risen on aggregate is because this change has been much greater in Imports than in the other sectors. Imports entail sending money abroad to buy goods from abroad and does not add to economic activity or income here. The Irish economy did not grow in the last quarter, we simply sent less of our money abroad to buy foreign goods. In fact the aggregate of C + I + G (if Ireland was a "closed economy) declined by 2.6% quarter on quarter.

Looking at the GDP figures by sector we do not see much upswing. Click to enlarge.


A minor increase in Transportable Goods Industries and Utilities aside, the trend in most sectors is still downward. There were quarterly decreases in Agriculture, Construction, Transport and Communications, Public Administration and Other Services.

Of course, if you want a measure of national income in Ireland GDP is not appropriate. GNP which takes account of net factor income from abroad is a far better measure. How did that do in the last quarter? Down 1.4% and is now down in eight of the last ten quarters including the last six in a row. Tweet