Oireachtas Joint and Select Committees

Tuesday, 26 November 2013

Joint Oireachtas Committee on European Union Affairs

Social Dimension of Economic and Monetary Union: Discussion (Resumed)

2:05 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I ask that people switch their mobile telephones off rather than leaving them on silent mode, because they will interfere with the recording equipment. We have received apologies from Deputy Crowe.

The first item on our agenda is a discussion on the social dimension of the economic and monetary union, EMU. I welcome representatives of the Economic and Social Research Institute, ESRI; IBEC; and European Anti-Poverty Network Ireland. We have Professor Tim Callan, associate research professor at the ESRI; Mr. Philip O'Connor, chairperson of European Anti-Poverty Network Ireland; and Mr. Tony Donohoe, head of education, innovation and social policy at IBEC. As we know, there is a growing debate at European and Irish levels on how social indicators can play a role in EMU. We have had a communication from the Commission very recently setting out its thoughts on how this can be done. Last week we were lucky enough to have a representative from the Commission talk to us about what the indicators should include. We have had one meeting with representatives of Irish bodies. Last week we heard the perspectives of the Irish Congress of Trade Unions, the Irish National Organisation of the Unemployed, and Dr. Seán Healy of Social Justice Ireland on this topic. Today we look forward to hearing the valuable perspectives of the ESRI, IBEC and the European Anti-Poverty Network. The views they express will form part of a contribution we will make to the European institutions on the social dimensions of EMU. That contribution will hopefully be made by Christmas.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings should be given and asked to respect the parliamentary practice to the effect that, where possible, they should not name or criticise any person or entity by name or in such a way as to make him, her or it identifiable.

Professor Tim Callan:

I am glad of this opportunity to address the joint committee about the European Commission's proposals on the social dimension of EMU. The committee will understand that I speak here on my own behalf, since the ESRI does not adopt a corporate view on these matters.

I have, however, benefited greatly from discussions with my ESRI colleagues, Helen Russell and Dorothy Watson, and their expertise has influenced much of what I will say.

I would like to turn to strengthening the social dimension of the EMU referred to in the Commission's document. Five years into the great recession, Europe’s recovery is still fragile and uncertain. As a result, unemployment in many EU countries remains high, averaging 12.2% in the eurozone. There are wide variations ranging from 5% in Germany and Austria to 13.5% in Ireland and more than 25% in Spain. A key aspect of the Commission’s proposals relates to "Reinforcing the monitoring of employment and social developments as part of macroeconomic surveillance". The macroeconomic surveillance procedure has been analysed by the distinguished economist, Paul de Grauwe, who states:

The European Commission has now been invested with the important responsibility of monitoring and correcting macroeconomic imbalances in the framework of the Macroeconomic Imbalance Procedure, MIP. The key idea in the MIP is symmetry, that is, imbalances between surplus and deficit countries should be treated and corrected symmetrically. As our analysis illustrates, up to now the European Commission does not seem to be willing (or able) to impose symmetry on the adjustment process. It imposes a lot of pressure on the deficit countries but fails to impose similar pressure on the surplus countries. The effect of this failure is that the eurozone is being kept in a deflationary straitjacket.
In the light of that analysis, adding indicators such as the unemployment rate to the procedure could lead to further asymmetries, with high unemployment seen as purely the responsibility of high unemployment countries and to be addressed by national rather than collective European actions. This would be at odds with the Commission’s expressed intention elsewhere that, “Without collective action to ensure that employment and social challenges are tackled in a timely and effective manner, long-lasting disparities may develop". Similar points are made elsewhere in the document. To realise this intention, it is critical to spell out the ways such additional indicators would be used and how they would link with broader macroeconomic policies.

I will turn to the section about reinforcing surveillance of employment and social challenges and strengthening policy co-ordination. Much of the monitoring is being done in the "Social Europe" space. This is confirmed by the statement that there will be no additional reporting requirements for member states. It is important, however, that these issues be considered within the framework of the EMU. Resolution of the problems identified by social indicators will often require action in terms of economic policy, including macroeconomic and banking policy, rather than being regarded as separate issues for social policy action. Monitoring of problems helps to enhance their visibility but helping to improve the situation requires a knowledge of how the social outcomes being tracked are linked to policies and to other shaping factors. This is where social research can contribute evidence on the likely impact of alternative policies. Two approaches are particularly relevant in this regard: micro-simulation modelling, which helps to assess the impact of potential future policies on tax and welfare, for example, before they are implemented; and cross-national research, which can help to explain why other countries achieve better outcomes.

I refer to some of the indicators in use in the MIP and to the proposed new headline measures. The alert mechanism report in the MIP includes what is termed the “at risk of poverty and social inclusion" rate. This includes all those who are either "at risk of poverty", which is below 60% of median income or suffering severe material deprivation or living in households with low work intensity, often referred to as jobless households. My colleague, Bertrand Maitre and his co-authors Brian Nolan and Chris Whelan, have argued cogently that this measure is seriously flawed. As they state, "The absence of coherent principles underlying the measurement process is likely to undermine the stated objectives of achieving an effective way of communicating in a policy environment, and a necessary tool in order to monitor national situations".

It seems the five new headline indicators will attract most attention. They are strongly focused on the working age population but incorporating the social dimension would imply consideration of older people and children not just those who can be "activated" or contribute to economic growth. In particular the rationale for reporting poverty only for the working age population is not clear. It would seem more appropriate to include child poverty and poverty among older age groups in top level indicators. There is also a narrow focus on income-employment and unemployment as outcomes. In some of the sub-indicators in the annex, issues such as literacy, early school leaving, material deprivation, and a narrow range of quality of work issues are mentioned, but there is nothing on health, psychological well-being, social participation and access to services. It is necessary to flag that these are also important.

The "real gross disposable income of households" is suggested as a headline indicator. It is not stated whether this is to be the median value or the mean. It would be preferable to have both but if one is to be chosen, then the median may be preferred. It is important to have indicators of low income, for example, the at risk of poverty rate, from the perspective of social exclusion rather than indicators of average income. Given known problems in relying on income alone, including its failure to capture long-term command over resources, direct measures of living standards from a range of indicators of material deprivation would help to provide an improved picture. As well as employment-unemployment at the individual level, household joblessness should be considered as an employment-related indicator. We know from the Irish experience that it is possible to have a low unemployment rate combined with a high household joblessness because household joblessness is sensitive to the distribution of work across households and the level of inactive statuses other than unemployed.

The work of Watson, Maitre and Whelan shows that household joblessness is not a good indicator of poverty and social exclusion because it does not necessarily result in low income or deprivation. It is a risk factor for poverty and social exclusion, just as lone parenthood and low education are risk factors, but it is not an indicator of the same concept as is captured by income poverty and material deprivation. Household joblessness needs attention in its own right. Given that activation and human capital development strategies are relevant to solving it, it belongs to the "employment" space rather than the "social exclusion" space.

Social cohesion and the importance of maintaining public support for the political system are given prominence in the introductory text but are not followed through in terms of indicators. For example, the implications of migration for social cohesion are not considered nor is there a proposal to track the level of public trust in government or democracy or support for welfare state despite the fact that information on these issues across the EU is collected in the European Social Survey and Eurobarometer. I thank the committee for its attention.

Mr. Philip O'Connor:

I thank the Chairman and committee members for their attention. The European Anti-Poverty Network, EAPN, is a European-wide alliance of organisations in member states, which focuses on European policy and its impact on poverty levels and so forth. We welcome very much this belated communication from the Commission to strengthen the social dimension of EMU. Ireland's stance since the 1970s has been that economic and social progress are two sides of the same coin as regards the development of the European project and economic progress should not be regarded purely as an end in itself but as a vehicle to improve living standards and create a more inclusive society. It is also obvious and patent that the EU cannot continue to be a competitive economic bloc if a quarter of its population is suffering deprivation or excluded from the basic services of society.

These are fundamental values not just of groups such as ours, but also of national policy. What is still in place, although it has taken a battering over the past few years, is the policy developed by the National Economic and Social Council, NESC, in 2005, The Developmental Welfare State, which set out a balanced approach to developing the type of welfare state this country should have. A balanced approach was also the aim of the Lisbon strategy and it is also written into the current Europe 2020 strategy while it was reiterated in the recent communication on the social investment package The values of social cohesion and so forth form a central part of the Structural Fund regulations, which will govern the use of such funds in Ireland for the next six years. The Irish EU Presidency adopted and argued for the social clause in the Lisbon treaty, as proposed by the EAPN. This requires the EU to take equal account of the impact of social exclusion on all aspects of policy at Union level.

We remember during the accession debates in the 1970s and again at the time of the creation of EMU in the early 1990s it was all about balancing economic conversion with social cohesion across Europe and with regional balance through Structural Funds. These have always been aims of Irish policy and we need to see them knitted into this latest - possibly final - stage of EMU.

During the years of the crisis we have seen a rise of consistent and relative poverty across Europe despite the aim of Europe 2020 to reduce it by 20 million people. The EU fiscal compact contains various measures to ensure economic and fiscal convergence, or at least a partial convergence in the fiscal area. While we welcome the latest communication in principle, it lacks an ambitious agenda for restoring the balance between economic and social objectives in achieving European integration.

The indicators are very restrictive in focusing on the labour market. Professor Callan referred to the restriction to those of working age in measuring exclusion and poverty. That needs to be expanded to incorporate areas such as child poverty, which are major concerns of social policy.

With the six pack and the emergence of macroeconomic surveillance of budgets at European level, this should include a stronger set of guidelines on convergence of social policy. Although it is not being implemented, in theory Ireland has poverty-impact assessment of various Government and budgetary strategies. We would like to see that knitted in as an indicator.

I wish to focus on the area of active inclusion which was adopted as a recommendation by the EU in 2007, building on an earlier principle position taken in the early 1990s. It combines the ideas of income support, inclusive labour markets through active measures to support people into work rather than a punitive approach and access to quality services. As Professor Callan has said, access to services is totally missing from the communications. Perhaps this committee could raise that issue in an effort to strengthen those aspects.

In addition to the indicators, we should also have guidelines on what should be a common minimum income approach across Europe. It is not possible to legislate for a common approach to minimum income owing to the amount of national decision-making retained in that area. As we have seen with the employment strategy and so forth, we certainly could have agreement across Europe on developing a set of principles and criteria around social policy in member states and particularly with regard to minimum-income schemes. We keep emphasising minimum-income schemes as the major way to tackle threats of poverty and social exclusion.

The communication pays little attention to in-work poverty. It seems to believe that once work has been achieved, the problems of social exclusion have been resolved. Of course we all know that in-work poverty is a growing area of exclusion across Europe. I re-emphasise the point that the document focuses purely on working-age payments, which disregards factors such as child poverty.

We support the principle that is retained in this communication of maintaining a system of social dialogue and the development of social market economy as a fundamental principle of European convergence. However, we notice there is a restriction in the definition of social dialogue to the social partners in the narrow and traditional sense of governments, employers and trade unions. This country has a strong record of having widened the social dialogue to include some other groups and we urge the committee to take note of that aspect. Those are EAPN's main points about the communication. In general we support it, but we would like to see a shift of emphasis in those directions.

2:15 pm

Mr. Tony Donohoe:

I thank the committee for the invitation to present the views of the business community on the social dimension of EMU. The economic crisis has revealed many underlying issues with European economic competitiveness and social policies. Careful consideration needs to be given to ensure that solidarity mechanisms in the EMU context support a reform agenda that will restore Europe's global competitiveness and reduce our high levels of unemployment. Good economic performance and improved social protection are not intrinsically opposed. They can be made to support each other.

I propose to deal separately with each of the Commission's three major proposals on: reinforced surveillance of employment and social challenges; enhanced solidarity and action on employment and labour mobility; and strengthened social dialogue.

IBEC is convinced of the value of monitoring the progress made in implementing the EU 2020 growth strategy through a set of well-chosen indicators. An early warning system under EMU such as the macroeconomic imbalance procedure is also necessary to prevent undesirable economic and fiscal developments at an early stage, and correct macroeconomic imbalances before it is too late. Likewise, the so-called scoreboard of macroeconomic indicators is an important tool to shed light on central aspects of the global competitiveness of economies, for instance, the trade balance, unit labour costs and export market shares.

The business community also values existing EU labour market indicators, such as the 75% headline employment rate target or targets in the field of education and training. These targets are useful to encourage policies and reforms at national level that boost employment demand and participation, and improve educational attainments in line with labour market needs.

Committee members will be aware that the European Commission is proposing the addition of employment and social indicators to the macroeconomic imbalance procedure, and the creation of a separate key employment and social indicators scoreboard. We have some concerns that the multiplication of indicators and overlaps between the different instruments developed in the context of the European semester will cause confusion. This could undermine the objective of ensuring proper monitoring of the progress made in implementing policies which improve competitiveness, growth and employment.

Indicators to measure purely social developments, as opposed to labour market developments, belong in the employment and social scoreboard, not among the macroeconomic imbalance procedure indicators. Any new scoreboard should provide information and incentives for member states to reform their labour markets regulations and policies, social protection systems and-or education and training systems where the data gathered give evidence that they do not function effectively. The Commission and the European Council should also ensure that sub-indicators are consistent with the headline indicator. For example, the inequality ratio indicator links precariousness to flexible forms of work. This is completely at odds with the positive role that flexible forms of work such as fixed-term contracts and temporary agency work play as a steppingstone into the labour market, particularly for the vulnerable groups such as the young or the long-term unemployed.

If we want evidence of this, we need only look at this morning's quarterly national household survey employment figures which show a 3.8% increase in employment. The most important aspect of this is the 53,500 new full-time jobs created in the past year. We have heard much criticism of part-time employment, and 4,500 part-time jobs have been created in the same period. We are beginning to see employment growth in full-time work and one follows the other. We should also consider other indicators such as a skills indicator which might measure learning outcomes based on labour market need. We would ask the European Council for one on the share of students participating in work-based learning.

IBEC supports the introduction of contractual arrangements, such as the convergence and competitiveness instrument proposed by the Commission. However, it is important these proposals strike the right balance between solidarity and responsibility by increasing incentives for structural reforms, and do not lead to an overall increase in the tax burden in the EU or the euro area. In the case of automatic stabilisers, EMU solidarity should not be automatic. It is essential to preserve a link between financial support and commitments for reform. For example, the idea envisaged by the European Commission to establish EMU-level unemployment insurance is unacceptable. To be effective, unemployment insurance must be shaped at national level in light of the overall economic and social safety nets in which they are embedded. Otherwise, they could create unemployment traps and become unsustainable.

Employers value social dialogue at European level because it can lead to arrangements that better reflect companies' and employees' needs rather than legislative initiatives. It also enables employers and trade unions to build a shared understanding, which are essential prerequisites to modernise European labour markets. The European social dialogue has demonstrated it can provide solutions, most recently with the framework of actions on youth employment. The declaration on social partner involvement in economic governance should be taken into account in institutional discussions on the social dimension. Current practice in Europe shows diversity in terms of national approaches to social dialogue. What matters is that in all these diverse national traditions, employers, trade unions and, as Mr. O'Connor mentioned the community and voluntary pillar, are reliable and responsible partners to discuss realistic and forward-looking solutions, whatever the institutional arrangements.

I thank the committee for the opportunity to provide this input. In this short time I have only been able to highlight the issues in general terms and I look forward to the discussion. Declining competitiveness in the European Union is a trend deriving primarily from internal structural weaknesses. It has been reinforced over the past year as international competitors, in particular emerging economies, have become stronger. High public and private debt, slow productivity growth and ageing populations are the main challenges Europe needs to overcome if it wants to remain a prosperous continent in the future. The key factor in Europe’s collective success will be the ability of the EU, its member states, companies and social partners to put in place the framework conditions, policies and measures needed for European companies to be able to compete globally, make profits and grow again. This is the only way to create jobs in Europe. Whether the measures taken contribute positively to competitiveness, growth and jobs should be the central benchmark of economic and social co-ordination at European level, because social progress is tied to economic success.

2:25 pm

Photo of Dara MurphyDara Murphy (Cork North Central, Fine Gael)
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I thank our guests for coming before the committee. Three excellent opening presentations were made. Perhaps the most important comment came at the very end from Mr. Donohoe that within the debate on labour activation and other measures, what Europe needs is growth. We see it here with unemployment reducing below 13% and quite a fantastic 5,000 jobs per month being created. With regard to how the macroeconomic balance procedure could be worked in, we spoke about this last week with reference to the Federal Reserve in the United States compared to the ECB. It has an absolute mandate to consider unemployment figures in the United States in conjunction with its broader remit for monetary policy. If the overlap may be confusing, would we be better to push it further up the line to the ECB altogether?

To an extent I agree with the point on having unemployment insurance at national level, but we have had a very poor debate in Ireland on labour mobility. Perhaps understandably it was badly handled with regard to unemployed people and suggestions on job opportunities in places such as United States. Nonetheless Europe has 2 million job vacancies and in our country we have job vacancies in certain areas. How do we address the issue of social insurance for people who are working so they can come back and have access to benefits again?

My next question is to Mr. O'Connor with regard to active inclusion. The committee is the first in the European Union to have this discussion with the Commission, which was quite glad to have been invited by the Chairman. We had an opportunity to make very strong representation. Mr. O'Connor mentioned encouraging people to engage with services and supports. Does he not see such encouragement to engage as positive? How would he improve it? If people are not encouraged to engage, in what other ways will they achieve? It is a very strong point and a new one for the committee.

My next questions are a little technical with regard to the mean and median. What are the headline indicators? This is one of the areas on which the committee was fishing for advice last week, particularly from the representative from the Commission. Will Mr. Callan give us an example of the choice between the mean or the median indicator on gross disposable household income? Why is going with the median more preferable? With regard to coherent principles underlying the measurement process, Mr. Callan did not make suggestions.

2:35 pm

Photo of Seán KyneSeán Kyne (Galway West, Fine Gael)
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I welcome our three guests. Professor Callan mentioned symmetry in the adjustment process and pressure on deficit countries. It is fair enough, as pressure is presumably applied to reduce their deficits, but he stated that the European Commission "fails to impose similar pressure on the surplus countries". Will he expand on this point? Does he mean a surplus country should be required to invest in job creation, to spend more and so on? Regarding his analysis of income poverty versus household joblessness, is he suggesting that the social welfare regime within jobless households is not being taken into account? These may be generous in certain countries.

Mr. O'Connor mentioned in-work poverty in Ireland. Are there EU comparative figures? He also mentioned the Irish Presidency and the social clause under the Lisbon treaty. Were the enhanced measures to which he referred, including the poverty impact assessment, put to the Irish Presidency? Was a set of indicators settled on following a cross-EU discussion? Mr. Donohoe referred to the indicators as being a source of confusion. Was that not unfair? Is there no ability or scope to consider a range of indicators that would not undermine policies aimed at improving competitiveness, growth and employment? The number of people not in employment, education or training, NEET, is one such indicator. Mr. Donohoe might expand on his point about skill sets in Ireland being fine compared with the EU.

Will our guests comment on whether the lack of repercussions for member states that fail to implement social indicators is good or bad? What suggestions would they make in this regard?

Photo of Kathryn ReillyKathryn Reilly (Sinn Fein)
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I have a few brief questions and comments. They are not strictly directed to anyone, but our panellists may want to comment. The Quarterly National Household Survey, QNHS, was mentioned in terms of the increase in employment, but one of its features that has emerged today points to a significant decrease in employment among young people, particularly those in the 25-34 year bracket. For the European Commission, one of the headline indicators is youth unemployment. While employment across the board seems to have increased, it has decreased significantly among that cohort.

The European Anti-Poverty Network, EAPN's presentation on social inclusion mentioned that social welfare supports had been cut, trapping people in poverty and undermining their capacity to seek work. How will the recent budget cuts to young people's social welfare payments affect their capacity to seek employment? How does this age discrimination affect our social indicators of active inclusion?

There seem to be differences between the information on part-time work and working hours. One presentation referred to the increase in precarious work, flexible working hours and low pay whereas another referred to the positive role played by flexible forms of work. A recent study showed that many young people who emigrated had a job at the time. This stems from part-time, precarious employment that does not lead to career progression. Will our guests elaborate? Sometimes, a few hours per week is a step on the job ladder, but if it does not provide career progression and it leads to young people emigrating to pursue their career paths, it can be problematic.

Photo of Eric ByrneEric Byrne (Dublin South Central, Labour)
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I apologise, as I was not present last week when much of this was explained. I would have been in a better position to enter the dialogue on this complex field. Obviously, Professor Callan prepared his papers in advance of today's great news that unemployment rates had dropped from his figure of 13.5% to 12.8%. My understanding is that the European Commission is anxious to monitor and alleviate large societal imbalances vis-à-vis poverty, employment and unemployment. It is examining areas-----


Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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Someone's telephone or iPad is interfering.

Photo of Eric ByrneEric Byrne (Dublin South Central, Labour)
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It is not mine. The rather tragic production of rankings of access to third level education is now in the public arena, but it is fascinating to note that, notwithstanding the "successes" of the private secondary school system-----


Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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Are people's telephones switched off?

Photo of Eric ByrneEric Byrne (Dublin South Central, Labour)
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It puts one off. The rankings were published this morning. It is fascinating to note that, notwithstanding the number of private second level school students accessing top colleges on higher point professions, for example, medicine, dentistry and so on, there has been an increase in the number of students from working class schools throughout my constituency. I have in mind schools such as Loreto College in Crumlin. Something like this was unheard of in the past. Some 50% of its students are now entering third level. This is phenomenal and ties with the increase in employment. We have discussed educational attainment as a means of boosting our status.

Has anyone considered family size as an indicator of poverty? Does it contribute? Lone parents are at risk of poverty, but none of the categories refers to family size as a potential measure.

Should any action or sanction be triggered if an indicator reaches a certain level? Following the meeting in Lithuania, it was stated that reaching alarm thresholds should not trigger automatic actions or measures.

Is the National Economic and Social Council, NESC, the appropriate forum for studying and speaking on these issues?

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I suggest that we take some answers in the order that we first heard the speakers.

Professor Tim Callan:

I will try to pick up on some of the points that were directed at my field. A question was asked about the difference between the mean and the median and why one would be preferred over the other in terms of income measures. The mean income, what people often think of as the average, can be strongly influenced by the number of high incomes. If average incomes rose swiftly, it could mainly be due to what was happening at the top of the income distribution. The median income, which is best thought of as the half-way mark when ranking people from the lowest to the highest, is not influenced. Incomes at the top could rise and fall regardless. I do not know whether this illustration can go into the evidence, but we will supply a graph later.

The second question is about the coherent principles, which issue is dealt with in a paper by Bertrand Maitre and his co-authors. It follows on the tradition of the measurement of poverty which grew up in the ESRI and has been adopted as a national policy. To be deemed to be in consistent poverty requires that the person be on a low income and experiencing material deprivation, which is very different, even living aside the jobless criteria, from what the EU is saying. It is saying that it will count as at risk of poverty or social exclusion a person who is either on low income or is experiencing material deprivation, even if experiencing material deprivation and having a high income. It is hard to justify this conceptually as a decent measure of poverty.

While on this issue I will respond to the question on the jobless criterion. Being in a jobless household puts a person at higher risk of poverty but so do lots of other things, such as being a lone parent or a large family in terms of size. It is confusing the causes of poverty and actual poverty to put both of those things into the measurement because doing so indicates whether a person is poor or is at high risk of poverty. Elevating that particular risk to a status whereby a person is automatically counted as being in the group about which concern is being expressed is to elevate it above all risks. That does not make sense. That case is made in a much more refined manner by my colleague and others in the paper I mentioned earlier.

On the asymmetry of the macroeconomic imbalance procedure, prior to our being part of the monetary union in the EU there was a variation in exchange rates. It was possible then to have an macroeconomic adjustment which involved an exchange rate. This was given up for the good reasons of facilitating trade and so on. However, there will still be forces that push economies in different directions. When they push an economy down it can go down, as we know to our cost, very hard and very fast and one can be left with few options but to adjust rapidly and strongly. If it goes up, there is not that sort of pressure. This is the reason for Paul de Grauwe's statement that these adjustments need to be symmetrical and that some of the burden must be borne essentially by Germany doing an internal revaluation at the same time as the current programme countries are doing an internal devaluation. This can come in different forms, including through tax cuts, increased public spending and so on. There are lots of ways this can be done but there is no pressure for it happen in terms of his assessment.

To bring things up to speed, we hear now that the Commission is considering adopting the macroeconomic imbalance procedure for Germany. However, nothing has yet happened. Even if it does, there is a question mark around what the outcome will be. I just want to flag this as a serious issue.

2:45 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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Thank you. Would Mr. O'Connor like to come in now?

Mr. Philip O'Connor:

A variety of issues have been raised. I will try to focus on a few of them. Deputy Murphy raised the issue of active inclusion and encouraging engagement. Of course we encourage engagement. What is important is that we keep in mind what active inclusion is about. It is not solely about encouraging people to engage with labour market services in order to regain access to employment, rather it is about having proper income supports in place, engagement with a positive system of supports which will assist people into appropriate training or employment and quality services. Without any of these three aspects, all of which have been stitched into national policy with the development welfare state and various other things, what one has is a system that punishes people with poverty where activation is not successful. While we understand the need to relativise benefit payments and so on, including for very young people coming into the system and to incentivise involvement in training, the reduction in welfare benefits for young people up to the age of 25 years, which includes large numbers of people who have families or are living in family homes, was out of court. This will drive people into poverty.

As pointed out by Senator Reilly, recent data on the growth of employment shows a less than impressive improvement in the employment rate among young people. A lot more needs to be done. We are all waiting with bated breath for the youth guarantee that is supposed to come into play at the same time as the cuts in benefit rates for young people. Unfortunately, the experience in this country is that while the punitive bits will be efficiently implemented, we will have to wait until the new year to see what shape the supports which are supposed to make available appropriate and quality training provision will take. We are not confident that the same level of determination will be applied in that regard. However, hopefully it will be.

The issue of in-work poverty was raised. I do not have the figures with me for averages across the EU. These figures vary enormously. Mr. Donohoe made the point that a foothold in the labour market can lead to a better, stronger and more secure foothold in the labour market. However, people who often acquire a very tentative foothold in the labour market remain in that situation. We have seen a growth in zero hour contracts and, in the retail sector in particular, an increasing level of precariousness of employment. We do not see a trend towards this type of work becoming more stable or long term. We need to monitor the pattern of precarious employment. The Mandate trade union produced a well researched report on the growth of precarious work in the retail trade two or three years ago. We are not seeing improvements in this area or in some other sectors. In-work poverty in an issue, in particular in the area of precarious work. Often what precarious work means is a mix of people who are partly reliant on welfare but are gaining access to employment of a part-time nature, often scattered over a week, with which the welfare system often cannot cope. There is a decreasing level of income in these particular categories.

We are also seeing, although in other European countries rather than here yet because immigration is such a recent phenomenon, people being encouraged into self-employment. While this is often a good thing, it often also leads to incredible levels of in-work poverty because in many small businesses which produce the income of only one person there are nine or ten members of a family working long hours to produce that income. This has been shown to be a grave problem in terms of the ghettoisation of immigrant populations in several European countries.

On the issue of indicators, an Irish initiative which secured the social clause of the Lisbon treaty was meant to maintain supervision of convergence of social standards across Europe along with macroeconomic aspects. It is an area in which there has been little progress. An element of member states are retaining sovereignty over their rights to governance social standards. There may be something in that. It has also been the promise of EMU that we would have convergence not only of economic performance but of social standards and the standard of living across the EU.

There is also the convergence in equality rates and quality of life rates. None of these aspects appears in the indicators at all except where they relate solely to involvement in employment or the labour market. Even if it is in a soft context, we would certainly like to see a policy of common standards for income levels and involvement in labour market participation. As Deputy Byrne mentioned, the unemployment threshold was ruled out as a possible indicator recently, but there should be guidelines for acceptable thresholds for poverty, unemployment and so forth. They must be stitched into the social dimension of economic and monetary union.

Deputy Byrne raised the question of the role of the National Economic and Social Council. The council has played an incredibly positive role over the past 20 years and particularly in producing national policy. In the background there was always some hard bargaining on salary and wage levels, etc., which gave an air of realism to what the council said about other matters. Where it is rooted in the realities of bargaining around such issues, its pronouncements on social policy and development of our systems tend to have real aspects to offer. We regard the council as a very valuable vehicle, although the question of whether the structure should be reconsidered is another matter.

Our bottom line is that we must return to the principles regarding common minimum income systems across Europe. The idea of a Europe-wide unemployment benefit system does not seem realistic, but there must be a level at which people's entitlements are transferable. This would apply if we wanted to increase labour mobility in any meaningful way. There must also be a move towards equalisation of the principles underlying social protection systems. It cannot be the case that in Poland people cannot exist on welfare rates, and if economic and monetary union is to be a real rather than just a macroeconomic process, instead of a social process, we must move to common principles behind social protection systems. That is regardless of the levels at which country's economies diverge. I hope that answers some of the points raised.

2:55 pm

Mr. Tony Donohoe:

With regard to Mr. O'Connor's penultimate point regarding the NESC, I still sit on it and it still exists, despite what one could call the demise of social partnership, or at least the disappearance of much of the formal structure around social partnership. It is a table around which all the social partners, plus the environmental pillars, sit. It carries out excellent analysis. Much of the thrust of its analysis formerly was as a precursor to the national partnership and pay agreements. They are no longer in place, but the analysis goes on. It began with a series on Ireland's five part crisis approximately four years ago, examining the social, economic, banking, fiscal and reputational crises. The third iteration of the report has just been published, and it is a very valuable piece of work. In the context of today's discussion, there has also been much research about the social consequences of the crisis. We often tend to see these discussions in terms of inputs, but it also considers how to improve services, which makes a difference to people's lives. That is as much about the efficiency of our services as how much money is invested in them.

Deputy Murphy mentioned the macroeconomic imbalances procedure and the Federal Reserve versus the European Central Bank. I do not see the European Central Bank as the appropriate body for measuring these types of indicator. To be clear, I am not saying that employment and social indicators should not be measured, as they plainly should, but the macroeconomic imbalance procedures are already complex enough, and they are what they say on the tin. They are for measuring macroeconomic balance and not the social consequences, apart from the labour market, which is a related factor. It is important that these measures are in place, but there is a problem when there is duplication of measures. We should remember the European semester and the five flagship targets in that respect, which have a raft of indicators under them. Poverty is one of those. Once there is an overlap of instruments we are in dangerous territory, as indicators have less value. That leads to confusion and very little added value. If indicators can support reform, they are valuable, but they must be carefully selected and robust as well.

Deputy Kyne asked about the skills indicators, which is interesting. This is where measurement becomes more important than what is measured. One can consider the Europe 2020 indicators and targets, of which Ireland has already achieved two. As Deputy Byrne highlighted, the numbers going to third level education far exceed the 2020 target, and I am thankful that rates of early school leaving are below 10%, which is another Europe 2020 target. Nevertheless, we still have youth unemployment, poverty and social exclusion. It is great and encouraging that we have met these targets, but this also shows how indicators by themselves are not the full story, as there are a range of other factors involved.

There were questions from Deputies Byrne and Kyne about sanctions, but such a process is not appropriate, particularly with social indicators. By definition, the countries that are probably least able to afford to pay or respond to punitive sanctions will be in the worst economic shape. I do not know what would be gained by the implementation of sanctions.

Senator Reilly asked about youth unemployment. This morning's figures show a decline in the rate from 31.1% in quarter three of last year to 26.5% now. The rate has declined but that does not make it acceptable. There is still a long way to go, which is why we are fully supportive of initiatives such as the youth guarantee. Like Mr. O'Connor, we look forward to seeing the details. My organisation is involved in a pilot project in Ballymun that involves the youth guarantee, and it is interesting to see where disconnects can exist in the system. This is not just about resources.

Senator Reilly also asked about flexibility and the interesting Cork study that considered the motivation of people who are emigrating. Ultimately, employment must lead to some sort of career progression. I still do not fully understand the word "precarious". Many people have five or six careers in their lifetime. The idea of the permanent and pensionable job for life disappeared well before this crisis emerged. It is important that those opportunities are there for young people.

Deputy Murphy referred to European mobility, and it is ironic that decades after our accession to the EU our young people are emigrating to Australia and Canada rather than EU countries. That may be more related to issues of language and culture.

It is probably less related to the social insurance system that was mentioned. Again, there should be clarity around the social insurance rules and processes. I had a problem with the rates and the idea of EU competence in that area because that is outside the treaty.

Picking up on some of Deputy Byrne's comments on educational attainment and the numbers entering third level education, it is very encouraging but it is still important, and this reflects Senator Reilly's comments as well, that the outcomes of those third level experiences are jobs. We have a very traditional middle class view of education in this country which is very academic and judges the aspirations at all social levels of young people to go to third level. That is regarded as success. If we look at vocational education or apprenticeships, they do not enjoy parity of esteem. I think this is a problem and a labour market problem as well. It is great that increasing numbers of young people are going to third level but it has to be an experience that will also result in positive employment prospects for them. Many of the courses available at third level have a strong vocational element and there are opportunities there. This is an area where Europe could really help because we hear a lot about the German dual system and the northern European economies' vocational education systems. We cannot recreate them here but we can glean some very interesting learning from them. A Government review of apprenticeships is ongoing, which is very important in terms of some of the lessons that might come out of that and mainstream that concept of vocational education which would enjoy parity of esteem and ultimately lead to employment.

3:05 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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On behalf of the committee, I thank all three witnesses for attending here today and for giving us their time. Speakers have provided a very useful contribution that will help form part of the paper we produce and present to the European Commission in the next few weeks. We have one further meeting on this issue next Tuesday with the National Women's Council and the National Youth Council of Ireland.

The joint committee went into private session at 3.13 p.m. and adjourned at 3.17 p.m. until 2 p.m. on Tuesday, 3 December 2013.