Seanad debates

Thursday, 8 November 2012

Youth Unemployment and Public Policy: Address by Professor Christopher Pissarides (Resumed)


11:35 am

Photo of Fidelma Healy EamesFidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

I welcome Professor Pissarides and thank him for his encouraging words of direction to the Government. He is shining a spotlight on the important topic of youth unemployment. This esteemed House has endured since 1922 and is known to be a place of ideas and debate. We would also like it to be a House of solutions. In taking over the European Presidency in January 2013, we have a unique opportunity to lead on the issue of youth unemployment. As leaders and national parliamentarians we will have an opportunity to address youth unemployment across the European Union. That makes Professor Pissarides's visit all the more special.

A report published today revealed that 25% of our young people believe that recession is the worst part of Irish life. More than 66,500 young people were surveyed for this report. Youth unemployment is a scourge that we ignore at our peril. History teaches us about the dangers of an unemployed and disaffected youth. We need only look to the 50% youth unemployment rate in Germany in the 1930s, which is the same level as in Spain and Greece today. Our youth unemployment rate stands at approximately 30%, or twice the level for the population as a whole. The President of the European Parliament, Martin Schulz, recognises that Europe's biggest problem is unemployment among young people. One of our own great writers, Peig Sayers, wrote "Measaim ná fuil aon dá sheoid is luachmhaire ná an t-óige 's an tsláinte," which means "I think there are no two jewels more valuable than youth and health". Our youth and the health of this society are under threat. It makes sense for us to act resolutely and I wish to focus on the solutions.

One of the best investments we can make in society is in our youth, not only for themselves but also because a working youth will fund our pensions. Inputs for youth will lead to a healthy cycle of life. I note the professor's recent comments to the British Government regarding the importance of social protection measures and the need to avoid cutting them for the jobless.

We are also committed to this. I was particularly delighted to hear Professor Pissarides speak today about job creation and public investment programmes. We should make no mistake about the fact that young people across Europe are not happy. They believe the implicit contract they bought into has been broken. They were told they could have a better way of life than their parents if they worked hard and studied hard. A young Spanish woman who was interviewed by The Economist said she felt as though she had trained for a world that no longer existed. We all know that for many people, leaving school or college is hopeless in the absence of an outlet for one's skills, natural enthusiasm, hopes and dreams. As Professor Pissarides knows, we almost had full employment during the boom, from which very high expectations resulted. Our bust was particularly sharp. Therefore, the fall has been so much harder. The sad thing for many parents is that they are no longer in a position to help their children because they are struggling with basic household payments. All countries that are in programmes are in trouble. We know we need a return to growth across the eurozone. In the meantime, we cannot wait. That is why it was good to hear Professor Pissarides's recommendations. The good news is that young people bounce back quickly in an economic recovery. The problem is that this recession has been going on for a long time.

What can Europe do? I want to put a proposal to Professor Pissarides. It is not the case that Ireland is not doing a great deal. We have drawn up the Pathways to Work proramme and the Action Plan for Jobs. We have signed up to the Europe 2020 growth agenda. Some 52% of those who have finished the JobBridge programme - approximately 10,000 people have started it - have gone into paid employment. I would like to put my own theory and policy direction on these matters to Professor Pissarides. We have made mistakes in education. We often educate purely for employment, rather than also educating for self-employment, which means that when people lose their jobs in a recession, they think there is no work they can do. We should be educating for self-employment and entrepreneurship, as well as for employment. It should not be an add-on, which is what many of educational institutions meddle in, for example, as part of the transition year programme. It should be part of mainstream education. If we are to do this, we need parallel creative and entrepreneurial education pathways which receive the same value and status as the traditional academic pathways. I would like Professor Pissarides to respond. What is his experience of other countries? Are there countries that have entrepreneurial pathways which receive the same value as the traditional academic pathways, on which we have relied for so long and have served us well but are not enough in a recession? I look forward to hearing Professor Pissarides's response.

11:45 am

Photo of Mary WhiteMary White (Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I welcome Professor Pissarides. It is an honour to be in the presence of a Nobel laureate for the first time in my life. I am particularly emotionally moved because the prize in question was awarded for economics. Professor Pissarides is very welcome. I represent Fianna Fáil, which is the major party in opposition, on the Joint Committee on Jobs, Enterprise and Innovation of this Parliament. On 18 September last, Mr. Robert Strauss made a presentation at the committee on the issue of youth unemployment in Ireland in a European perspective. He held up a chart to show that Ireland has the worst long-term unemployment and youth unemployment of all 27 EU countries. Professor Pissarides may be surprised to hear that.

If I may be blunt, if politicians do not have vision and leadership and do not tread dangerously, they are wasting the time of taxpayers. We received a presentation from a Government body - the expert group on this country's future skills needs - that drew attention to the number of job vacancies in Ireland. Its most recent report, which was based on a survey conducted in 2011, analysed over 100,000 new vacancies across nine broad occupations, specific required skill sets and educational attainments. It showed that despite the recession, job vacancies in the Irish labour market had continued to rise. Approximately 8,500 new vacancies were being advertised each month, despite the scourge of unemployment. Along with another lady, I established a business in 1986, during the last terrible crisis in Ireland. The business in question, Lir Chocolates, currently employs 250 people. We worked for 24 hours a day, seven days a week, for 16 years to make the company succeed. We worked on Christmas Day and New Year's Day. The company would not have survived if we had not given it that level of attention.

We have a serious problem with the public sector. It is not adding anything to the value of the economy. The only jobs that will be created in this economy will be in small and medium-sized indigenous Irish companies and foreign direct investment companies. The people have to realise that those are the only places from which jobs will come. The budget on 5 December next should not dare to touch anything in this country that will impede or constrain the growth of the economy. To be honest, we do not have enough people from a business background to understand that point. I attended a breakfast meeting this morning that was organised by my party's finance spokesman, Deputy Michael McGrath. The business people at the meeting pleaded with us not to allow the Government to do anything in the budget that would stop them from developing their companies. Some of them said they feel they are working merely to pay our staff. As Senator Healy Eames said, we need entrepreneurs.

I wish to highlight a pet issue of mine, which is the Irish people's lack of bilingualism. The ability to speak foreign languages like French, German and Spanish is as important as the acquisition of maths, science and technology skills. We have a serious problem. When young children are in school, they spend hours learning our native language, which we all love and are emotionally attached to. When Irish people finish secondary school, they cannot speak their own language. We have to deal with this issue. We do not have a second language. As Professor Pissarides knows, most young people in every other European country can speak English as well as their own languages. Our serious deficit with regard to bilingualism makes it more difficult for us to do business at the high level of technology that is required now. Business is much more complicated and technical in the new globalised economy. It is no longer a question of developing a personal relationship. One has to be intellectually agile in the areas of science, technology, engineering and maths and be able to communicate in other languages. We have to be more focused on providing these skills. We do not have the skilled people necessary to take up thousands of jobs that are available. I want to know where the leadership will come from to grab this problem and resolve it quickly, as would happen if a multinational company or any other private sector company faced a challenge of this nature.

I will conclude by emphasising that despite what I may have inferred about the public sector, there is absolutely no doubt that there are outstanding public servants in bodies like Enterprise Ireland, IDA Ireland and the county and city enterprise boards, to name but a few. We have an increasing problem. The many people who are being let go from the public sector are adding to the high rate of unemployment. They are unemployed now. As a former business person, I find it frustrating that there is no energy or drive to solve the myriad problems.

Photo of Ivana BacikIvana Bacik (Independent)
Link to this: Individually | In context | Oireachtas source

I welcome Professor Pissarides to the House. He is very welcome. I commend my colleague from Trinity College, Senator Barrett, who first suggested that Professor Pissarides might come to address us.

I have a particular affection for the London School of Economics, where I completed my masters degree in 1990-91 and have wonderful memories in particular of the late Professor Bill Wedderburn, who was lecturer and mentor to me there. LSE combines an extraordinary level of intellectual and academic rigour with a really strong level of civic and political engagement at public policy level. Professor Pissarides's career demonstrates that combination in terms of both his hugely impressive academic and scholarly output, and also his input into public policy at European and national level - quite apart from the Nobel Prize. We are delighted to have somebody of his eminence here and I thank him for coming. He brings not only the academic rigour but also membership of organisations such as the European employment task force, which is particularly important for those of us engaged in public policy.

Senator Healy Eames referred to a comment Professor Pissarides made on the award of the Nobel Prize in 2010 and the risk that deep welfare cuts, particularly cuts to jobseeker's allowance and housing benefit, may cause spiralling poverty and may have a detrimental impact on job creation. That is a very helpful comment for us to remember. I know he made it in the context of British Government policy, but it is something that has a resonance here also. The Minister for Social Protection, Deputy Burton, has stood firm against cuts to core social welfare rates and made the point on several occasions that social welfare spending is an economic stimulus - is a form of stimulus package - because payments made to those on welfare feed directly into the local economy through the local retail sector and so on. Cuts therefore impact not only on families on welfare but also on businesses their spending supports.

I very much welcome the point Professor Pissarides made on the need for spending on education and training during a recession. That is a point very well made and we need to emphasise it here. Regarding entrepreneurship, the professor mentioned the US as the powerhouse of organisations such as Apple and Google. In a recent blog he stated that this points to a difference between job-creation policies in Europe and those in the US. It is no coincidence that Ikea is a Swedish company rather than an American company as this demonstrates the different approaches taken. Ireland has a strong record of entrepreneurship, particularly in the IT sector. From Trinity College Dublin we have had companies such as Iona Technologies in the past and more recently major developments in the computed gaming sector where companies such as Havoc, the digital hub and so on have led the way. Senator White referred to areas in the Irish economy where there are job opportunities but insufficient skills and where we are still importing people with those skills. The IT and computer gaming sector is one of those areas. We have a record of entrepreneurship there and we need to stimulate it further.

I turn to some of the other points Professor Pissarides made on youth unemployment. This morning we received some very good news from the Department of Education and Skills in terms of youth retention rates at secondary schools, which with 90% of students staying on to complete secondary education is the highest it has ever been. In particular the number of boys at school has risen and the retention rate of students in disadvantaged schools has also risen. That is obviously linked to economic recession and a lack of employment opportunities, but it feeds into what the professor said about education. The Government has commenced many initiatives and my colleagues have referred to some of them including the Pathways to Work programme, JobBridge, Tús and the new SOLAS agency that replaces the pre-existing training agency.

The professor mentioned the need to ensure training in short courses and this is the way to lift people out of unemployment. While the previous employment training agency, FÁS, was much maligned, it had the strength of offering short and very labour market focused training programmes. I know many graduates who could not get work on foot of their primary degrees but following a six-month FÁS course in computer assisted design, for example, or some form of programming, were able to get employment and are still in employment as a result of that short course. That is also very important point.

The national policies in which we are engaged can clearly only go so far. As we take up the Presidency of the European Union in January we need to look at the idea of a European-wide youth guarantee proposal. Is Professor Pissarides familiar with the idea of a European youth guarantee to be funded potentially by the European Social Fund or European Structural Funds and which would guarantee young people that within four months of becoming unemployed they would be given a training place, an apprenticeship or a combined work and training placement, if not a job offer? Commitment is needed on this at European level where there is an EU average youth unemployment rate of 22%. Clearly Ireland's rate is higher at 30% as the professor pointed out. Does he believe this would be an appropriate measure to tackle youth unemployment?

Professor Pissarides mentioned wage subsidy schemes which in Germany have been used to great effect to bolster the automobile industry in times of recession. Does he believe that is something governments across the EU should adopt? I thank him for is very thought provoking and stimulating address.

11:55 am

Photo of Sean BarrettSean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I welcome Professor Pissarides and compliment him on winning the Nobel Prize having grown up on the island of Cyprus and then gone to the University of Essex and the London School of Economics. What he said to us about the lost generation will certainly stop us in our tracks as we try to deal with the problem of youth unemployment throughout Europe. This is not the only honour for the professor today. The Trinity College Historical Society will present him with its gold medal this evening as an appreciation by young people for his work. That society was founded in April 1747 by Edmund Burke. His biographer stated that he found in Trinity College Dublin an amount of intellectual activity considerably greater than that which Gibbon a few years later found in Oxford. I hope the professor finds TCD provides that degree of stimulus when he goes there this evening.

I note the professor's emphasis on dealing with unemployment on a micro level. In Ireland probably more than anywhere else we have learned that quantitative easing leads to much faster results in stock exchanges and banks, and then precipitates a property boom from which we are now trying to recover with horrendous consequences because it limits utterly the ability of the Government to tackle the issues the professor has raised so strongly with us. I agree with the emphasis on such micro approaches because the experience of QE in Ireland has probably been among the biggest disasters of any country. Given that our resources are limited, the questions that arise from the professor's presentation relate to the type of education we should have. Can he think of areas of investment in education that we should expand or areas of investment in education that we should reconsider?

Regarding the professor's project appraisals, we had a massive problem with one of the biggest public capital programmes relative to GDP to be found anywhere. The background would be a strong tradition of engineer dominance, rent seeking by the construction industry and a lack of project appraisal resulting in projects that add more to the country's debt than to its GDP as they work out. As Senator Bacik mentioned, we had a problem with labour market quangos - one of which was spending ¤1 billion of EU funds in a period when unemployment was virtually non-existent at 4%.

While I hate the term, an important consideration for us is how to get more bang for a buck in these areas. I ask the professor, developing his major points, to outline any ideas he has to help us to focus. We are seriously in debt and in an IMF rescue programme. We are trying to do, as other Senators have said, so much in terms of 90% retention rates at second level and so on but we need to use our resources very efficiently because we made so many mistakes and used up so many of our resources previously.

The professor mentioned the European Investment Bank. Can it hone its investments to a better rate of return on projects? Do we need a central office of project evaluation? Would he require the evaluations to be published well in advance in order that economists, such as him, could assess whether the projects were worthwhile. It is an economy where rent seeking and regulatory capture were features. Today's newspapers have again highlighted that we are still captured by banks that are largely exempted from the consequences of the damage they imposed on the country.

I thank the professor for his words of wisdom, which are very important to us. We have a major problem to address. I refer to other points mentioned by Senators. In education we have a mathematics problem, which has been discussed in this House. We also have a problem with languages, also referred to today. Is that inherent in all countries in which people speak English? People do not learn enough languages to trade with the BRIC countries and the wider world.

I thank Professor Pissarides for addressing the House. We look forward to his replies.

12:05 pm

Photo of Kathryn ReillyKathryn Reilly (Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I welcome the professor to the House. This debate is particularly relevant to me because young people under 25 years are my peer group. I am very aware of people my age, friends, family, colleagues from college and school, who are unemployed or have been forced to emigrate. Senator Healy Eames quoted an Irish writer. I would like to quote another one, W.B. Yeats, who wrote, "That is no country for old men".

Photo of David NorrisDavid Norris (Independent)
Link to this: Individually | In context | Oireachtas source

It certainly is.

Photo of Kathryn ReillyKathryn Reilly (Sinn Fein)
Link to this: Individually | In context | Oireachtas source

My point is that it is no country for young men, young women or young families. This comes back to the issue of youth unemployment and to emigration, which was not touched upon. In 2011 alone, 87,000 people left this state and there are 460,000 unemployed.

I agree totally with the professor's point that we have given too much away to fiscal austerity. My party is a firm advocate of that position and is strongly in favour of stimulus. Will the professor give us his opinion of stimulus? My party has proposed consideration of using State resources such as the National Pensions Reserve Fund, examining what the European Investment Bank could offer and erasing cuts to capital budgets. As the professor noted, such investment in infrastructure would return benefits into the future.

The professor laid particular emphasis on frictional employment. In Ireland there has been much structural employment but because of the collapse of the construction sector many thousands lost employment and are in need of upskilling and retraining to adapt to the new needs of the labour market. That collapse had many spillover effects on other sectors, such as retail. Feeding into this problem are the high numbers of young people who are not in education, employment or training. A recent report put this figure at 22% overall for those aged between 15 and 29, which is probably one of the highest levels in Europe. The same report found that the number of long-term unemployed in Ireland has skyrocketed and is now the fourth highest in Europe.

Photo of Denis O'DonovanDenis O'Donovan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source

The Senator's time is up but I will allow her some seconds.

Photo of Kathryn ReillyKathryn Reilly (Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I join Senator Bacik in asking the professor to touch on the youth guarantee. Our Minister for Social Protection, Deputy Joan Burton, has stated she would advocate this during the Irish Presidency. Will the professor give his opinion on that issue? I refer again to long-term youth unemployment. How do we try to tackle it? As he noted it will be much harder for these young people to try to engage, come back to the labour market and upskill. As Senator Healy Eames noted, these are the people who will pay our pensions into the future. How do we tackle that problem now, given our high rate of long-term youth unemployment?

Photo of Denis O'DonovanDenis O'Donovan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I will now allow questions. I have a strict rule concerning the way they will be asked, as well as a strict time limit. Would the professor like to respond now or take other questions and respond at the end?

Professor Christopher Pissarides:

I will respond now. Some very useful points were made and I should respond to them quickly before we take questions.

Senator Healy Eames asked what Ireland can do with the Presidency. It is a unique opportunity. The biggest benefit to the economy and all unemployed people, in particular the youth unemployed, would be to persuade the powers that be in the EU, the troika-type powers, to split the budget between recurrent spending and investment spending. Investment spending costs money now but gives revenue and return in the future. It is not right to include it with recurrent spending such as salaries of civil servants and whatever other Government consumption there may be. Even if the powers decide to impose austerity on the investment budget it should still be kept separate. Putting all the money that has been put aside to rescue and bail out countries in need into one fund, and looking at that budget only to see what economies can be imposed before handing over the money, is wrong. The money should be split in a way that is more akin to offering Structural Funds, which can then go into investment. Another part of the money could go where it now goes, as with the EFSF money that goes into the bailout funds. That would help enormously. It would create jobs through investment projects and would bring numbers of youth unemployed back to work. I get the feeling there is a positive leaning towards that measure in Brussels so it might be a good time to propose it.

There were questions about the jobs and skills we should have and points were made about self-employment. I envisage certain sectors creating jobs in the future. This is where job creation will come from and will apply to both young and older workers and especially to women who are coming into the labour force in bigger numbers. There will be a fairly small number of highly qualified jobs in information and communications technologies, ICT. There will be green jobs, for example, how to convert our buildings into more environment friendly ones. The big numbers of jobs will be in health education, the social care type of occupations and retailing. Retail is a big sector that will employ more people.

In terms of the skills needed for these jobs we need to train people differently. There is a different mentality than previously. An apprenticeship that trains a person for industry is a good training but either there will not be any jobs in that sector or they will be so few that the training will have to be forgotten. We have to retrain. That is where conflicts occur in the many vacancies that come onto the market - people do not have the right skills. We are in recession now. I do not know the exact numbers in Ireland but in the EU as a whole there are some 25 million unemployed and only 2 million vacancies. The numbers are obviously distorted but the fact remains that there still are vacancies but they are not being taken up because the relevant skills are not present.

Training in ICT at school level and training how to convert buildings using a more green technology will help but there must also be training in care. What does it mean now to enter the health or retail sectors? Language ability will be very important, particularly in the retail sector, as will teaching person to person skills, how to deal with other people. That is something we are not used to doing because it was not needed in manufacturing. If one is on an assembly line or doing machine repairs one is essentially working on one's own, not communicating with others. The big numbers of jobs in the future will be in sectors where interpersonal communication will be needed.

In the sectors I mentioned, company size will be smaller which emphasises the importance of small and medium-sized enterprises and the self-employment sector.

We know that ever since the Schröder reforms in Germany, the policy of encouraging self-employment in the form of start-up grants for the unemployed in particular has proved very successful. Under this policy, people can collect unemployment benefit for a limited period. If they start their own businesses, however, they can collect it for longer in the form of a grant.

12:15 pm

Photo of Fidelma Healy EamesFidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

We also do that here.

Professor Christopher Pissarides:

As stated, the policy has been very successful in Germany and it is good that Ireland also has such a policy. I recommend policies of this nature because the relevant government can recoup most of its costs, if not through tax then by means of social security or national insurance contributions that self-employed make. Essentially, studies from Germany indicate that these programmes become self-financing. Due to problems with collecting data, these studies do not relate to the recession but are from 2006 and 2007. I do not believe, however, that the position would be very different in the recession.

I would like to comment now on how to train people in order that they will obtain suitable skills. As stated earlier, we must involve local businesses much more in the design of the curriculum. They are actually prepared to do this. I have spoken to CEOs who have indicated that they become frustrated when they want to hire young people and then discover that these individuals do not possess the skills they need and must be given a great deal of training. These CEOs also stated that it would be easy for schools to provide the proper training, particularly if they were invited in once a year to discuss the curriculum and the relevant syllabuses and then make recommendations about the type of jobs they see being created. Those to whom I refer are best placed to interpret future trends. They become aware of those trends first and then we discover them by observing what these individuals do in respect of them. They know what is required before they do it and, as such, this is not a random process. If that to which I refer were to happen, it would allow for better matching of skills to job creation opportunities.

I am sure Senators will be aware, in the context of Ireland's forthcoming Presidency, that the Directorate-General for Employment, Social Affairs and Inclusion of the European Union is carrying out many studies in respect of ICT, green jobs and health. These sectors were the subject of much discussion when I was in Brussels almost a year ago. During its Presidency, Ireland could encourage debate on the type of jobs that could be created in these sectors. Some of the biggest and most important sectors in which jobs were created in the 20th century were those in which the great technologies discovered in the 19th century were used. I refer, for example, to the internal combustion engine, domestic technologies and appliances, new types of housing, air conditioning and heating. When I first went to England in the late 1960s, I could not believe that houses still did not have central heating. Now all houses have central heating. A great many people had to be employed to ensure that the latter became the case.

We have not, however, taken action in the context of greening our buildings. This will be the next major area of construction in which employment is going to be created. For better or worse, Ireland has an advantage in this regard because it has so many unemployed construction workers. They will ensure that there will be a silver lining to the cloud currently hanging over the country. They are going to be of assistance in making a virtue out of the vice that gave rise to the huge expansion of the construction sector in the past. I will be able to expand more on these points when I address the College Historical Society in Trinity this evening. Construction is the biggest contributor to unemployment in this country among both young and old. In fact, Ireland is No. 1 in Europe in this regard and even beat Spain by a tiny amount in the context of the contribution the sector has made to unemployment. Everyone thinks of Spain as being the major problem in this regard but Ireland is just as much of a problem.

As stated, the German scheme relating to the self-employed has been very successful. This is because it has become self-financing. There are governments, particularly that in Britain, which have doubts with regard to whether such schemes would succeed in their jurisdictions. When I discuss matters of this nature with the economic policy unit at No. 10 Downing Street in Britain, those who work there have doubts as to whether a subsidy scheme relating to the hiring of unemployed people - particularly those who are long-term unemployed - would succeed. I am not persuaded by the arguments they put forward in this regard, particularly as the subsidisation scheme in Germany has worked well. Again, I intend to give more details on this matter when I address the College Historical Society this evening. However, I will state that the subsidy in Germany is for nine months and this is renewable if the worker stays on and is successful. The gross cost of the scheme is the same as that which relates to the payment of unemployment benefit. The latter might be paid for six months or a year but it can last even longer if it is given to an employer who subsequently pays the worker an amount above the rate of the benefit in order to incentivise him or her to take the job. When the employer then makes national insurance contributions, the net cost to the Government is less than that which would obtain in respect of the payment of unemployment benefit.

The scheme to which I refer has been especially successful in times of recession because if employers are not intending to create many of the type of jobs to which I refer, then there is no loss in respect of their collecting subsidies in respect of jobs they would have created in any event. I would certainly recommend this scheme.

On whether a fiscal stimulus should be put in place, this takes care of the splitting of the budgets to which I referred earlier. I am of the view that it should be given on the investment side. The youth guarantee is a good policy but it is going to be very expensive. Four months is not a long period, particularly in view of the extended durations that exist now. I have only just become aware that Ireland has the longest duration for youth unemployment. I had thought that Spain had the longest duration. The guarantee in this regard is very good. We must ensure, however, that if it is voted in, it will be followed up on. If we fail to follow up on it, then the reputation of policy makers will go down in the estimation of those who are young and unemployed. A guarantee of obtaining a job or training within four months is good but we must wait to see whether it will work in practical terms.

I will now say something slightly tongue in cheek. Language is a great skill and I tried to learn French and Italian. However, I ended up only learning English as a foreign language. Senator Barrett inquired about the advantages and disadvantages of those who live in English-speaking countries. The new technologies are entirely dominated by English as a result of the involvement of the Americans. As a result, there are advantages to being able to train people in ICT skills through English. However, as we discovered on Tuesday, American politicians are going to be obliged to learn Spanish if they want to be elected to office from now on. It might become a disadvantage to be in a country in which people speak English in the future, particularly if one is a politician.

Photo of Denis O'DonovanDenis O'Donovan (Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I will now take questions. I ask Members to be as brief as possible. There is actually a limit with regard to the number of questions I can take. I call Senator Moloney, who was first to indicate.

Photo of Marie MoloneyMarie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

I extend a céad míle fáilte to Professor Pissarides. It is great to be in such illustrious company. As time is short, I will come straight to the point.

Professor Pissarides mentioned that the minimum wage is a deterrent to employment. In my view one is never better off unemployed than employed. If a decent minimum wage is not on offer then we will be unable to encourage people to go back into employment. I ask for his views on the rates of pay in this country. The knock-on effect of youth unemployment is far-reaching. In my part of the country we have a great tradition of Gaelic football. I note that our football clubs are being forced to amalgamate because there are not enough players as the young people are emigrating. The effect on communities is significant. I am the mother of a young person who is in employment and who is about to buy a house. However, such people are in fear of losing their job of being caught up in negative equity or being unable to repay a mortgage.

12:25 pm

Photo of Darragh O'BrienDarragh O'Brien (Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I welcome Professor Pissarides to the House. He referred to the importance of capital investment. Up to 2010 this country had a capital investment programme of up to 5% of GNP and it is now closer to 3%. A cut in the capital programme is seen by many governments as being the easy option. In the most recent budget there was a further cut of ¤750 million. It is difficult for governments to balance the books. Ireland is in a programme. The troika has been very critical of extensive cuts but the Government believes in over-cutting the capital investment programme.

One area in which we have been unable to get any leverage is private sector pensions, corporate pensions in particular. Over ¤80 billion is invested in Irish pensions and this does not include the foreign pensions managed in this country. Have other countries been able to leverage private sector pension investment at a corporate level to provide direct investment in infrastructural and other capital programmes which are regarded as having good steady long-term investment returns? Successive Governments have been very slow in accessing and opening that pot. What is the easiest way to do this? Have other EU states been successful at driving private sector investment into public infrastructural projects?

Photo of David NorrisDavid Norris (Independent)
Link to this: Individually | In context | Oireachtas source

I welcome Professor Pissarides and compliment my colleague, Senator Barrett, on inviting him. I have a particular question about putting a human face on economics which is very important. One of the aspects of his contribution which I admired was that it was delivered in accessible language. I am lucky enough to have a house on the beautiful island of Cyprus, up in the Troodos mountains. This summer I saw people collecting money to give food to people in Athens. Mr. Schäuble recently visited Ireland. He complimented this country on the fact that we were successful. It does not feel successful. It feels rather like what happened during the Famine when a rigid economic theory was imposed from the centre on defenceless people here. This was not done maliciously, necessarily, but laissez-faire economics contributed to the disaster of the Famine. Similar rigid economic theories are now being imposed ruthlessly from the centre while people are suffering.

Mr. Micawber's explanation was, income, one pound; expenditure, nineteen shillings and sixpence; result: happiness. Income, one pound; expenditure, one pound and sixpence; result: misery. In this country, 1.3 million people have a disposable income of ¤50 or less at the end of the month and at least that much will be taken in the budget. How can it be done? Money is a symbolic representation of energy. It is unequally distributed. It seems there is less and less of a human face to be seen in this regard. The New York Stock Exchange has its algorithms set to discharge sales and purchases in nanoseconds and it is now introducing regulations that one must hold shares for eleven seconds, maximum. It is astonishing. It must mean that the humane element is drained out. Professor Pissarides has a capacity to deliver a message clearly. I was particularly glad when he spoke about education and investment in infrastructure. He is right and it was wonderful. Can we bring the desolate people of Europe with us? I am sure Professor Pissarides noticed there were between 70,000 and 100,000 people on the streets in Athens last night and that there is a disjuncture.

Photo of Michael MullinsMichael Mullins (Fine Gael)
Link to this: Individually | In context | Oireachtas source

I join in the words of welcome to Professor Pissarides. His was a most interesting, stimulating and thought provoking contribution, as were the other contributions. I come from a town that lost 1,000 industrial jobs in high volume, low tech engineering-type operations. It is very difficult to replace such jobs. Professor Pissarides spoke about the future for job creation being in green technology and the retrofitting of homes. In his view, should the Government provide subsidies or financial inducements to encourage people to consider investing in the retrofitting of homes which would create much-needed jobs?

Professor Pissarides spoke about social entrepreneurship and the job opportunities which could be created in the area of social care. Should the Government consider disengaging from some forms of care it currently provides and allow private and social enterprise to replace it? Jobs are being lost in every small town because the retail trade is on its knees. What advice would Professor Pissarides give the Government in an effort to boost retail sales and activity in advance of Christmas and throughout the year? What should be done differently to encourage people to spend money? Despite the recession, many people have money but they are not spending it because they are fearful of what could happen in the future.

Photo of David CullinaneDavid Cullinane (Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I welcome Professor Pissarides to the House. There was something in his contribution for everybody across the political spectrum. I agree with him that austerity on its own damages the domestic economy. We all accept the need to reduce the deficit in this State and across Europe. However, the concern is that investment and growth are not receiving the political attention they require and which the austerity policies receive. There is much talk about investment and growth. What advice would Professor Pissarides give the European leaders to put practical supports in place to encourage investment in the eurozone and the member states? I refer to the unsustainable levels of debt of many European countries, including Ireland. The servicing of those debts has an impact on the domestic economy and growth. What advice would he give Ireland and Europe about the management of the unsustainable levels of debt? My main point is about the need to shift away from austerity to policies which encourage genuine investment and growth. This is the best way to get people back to work and to reduce the massive unemployment rates across the eurozone.

Photo of Jimmy HarteJimmy Harte (Labour)
Link to this: Individually | In context | Oireachtas source

I welcome Professor Pissarides. The phrase, "That is no country for old men", comes from the poem, Sailing to Byzantium, by William Butler Yeats. He was a Member of this House and it is appropriate his lines were spoken. I agree with the Senator that this is not a country for young people at the minute and neither is Europe a continent for young people. The rates of youth unemployment in the United States are much lower compared to the rates in Europe.

Is this a result of how it is measured, or is there an actual difference? I know from my sons and daughter that many young people who have graduated do not believe they will end up working in the discipline in which they graduated. Many must take up work outside their areas of study. Does Professor Pissarides believe that people are in the wrong disciplines or that jobs are not available? Should we focus on more specific degrees so that students will be able to work in defined areas? More than half of the last generation of graduates have ended up in other fields of employment. Is that a problem specific to Ireland or Europe or is it a global problem?

12:35 pm

Photo of Colm BurkeColm Burke (Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank Professor Pissarides for taking the time to be with us today. There are two categories of young unemployed person. We have highly qualified young people who feel frustrated because there are no jobs, but there is also a set of young people who have grown up in the tradition of unemployment. I was involved in a project that helped young people who had dropped out of school. We worked with them to try to get them into employment. When we surveyed these people five years later, at a time when the country was doing well, we found that neither their fathers nor their grandfathers had worked. We now have a problem because of the recession, as it is even more difficult for people to escape from that rut.

We need to focus on people with good qualifications, but we also need to focus on those families in which nobody has been employed since before the grandparents' time. Is there a policy at European level to deal with that problem across Europe and to focus on areas in which no progress has been made, even in good times? We can easily forget about that. I think we must focus on this problem area.

Professor Christopher Pissarides:

I agree that a good minimum wage is essential to encourage people to go out to work. The minimum wage is viewed in the same way that the medical profession views alcohol. Too much alcohol is not good for you, and no alcohol is also not good for you, but the middle way is really good for your heart, which is advice that I always follow. The same logic applies to the minimum wage. The absence of a minimum wage is not good because it introduces lower expectations of work in the minds of people, but too high a minimum wage will work against job creation. Where to strike the balance partly depends on the economy in question, but there are many similarities in the structures of European economies. Economic studies have found that for optimum benefit the minimum wage should be set at between 45% and 50% of the median wage. This does not harm employment. The minimum wage in Britain is about right, as no study has found that it has harmed job creation. It is a little bit higher than the rate in the United States, where it was found that minimum wage actually encouraged employment, but it is less than what they have in France, where studies have shown that the minimum wage has damaged employment. If I were to use percentages, I would say younger workers should be paid 35% to 40% of the median wage at a maximum. If an adult is getting 45% to 50% of the median wage, one would have to take 10% off that rate, because young workers are inexperienced and their wages are lower. A range of 30% to 40% of the median wage is good for the youth labour market. That is the rate, more or less, that applies in Britain. The minimum wage council conducts research into the impact of the minimum wage and recommends the necessary adjustments.

I agree entirely with the points Members made on investment. There is only one budget for all public spending, and investment is the easiest thing to cut. I have repeatedly made the proposal that the investment budget should be split from the current budget. The investment of funds from private sector pensions into public projects is a good idea and it could fit into public private partnerships. I must confess that I am not aware of any success stories, but that might be because I have not looked for one. If I had seen or heard somebody discuss that option, I would be able to tell Members about it, but I have not heard of any such success stories. The most recent information I have on pension funds investment is the direct opposite. In the financial press today, it is reported that pension funds are more heavily invested in bonds that have secure incomes and are no longer invested in equities. The culture of investing pension funds in equities is gradually going away because of the uncertainties in the rate of return from equities. Those who manage pension funds know the obligations they have and feel that a fixed income investment will remove much of the uncertainty. Of course, investing in public private partnership is a move in the opposite direction. I am not too optimistic that such funds can be persuaded to invest in projects now that the investment environment is so uncertain. That is the reason I suggested the European Union should come in and part-fund the projects through the Structural Fund.

One of the most significant problems we are facing is inequality in pay. This problem, together with the debt cliff, will haunt America in years to come. We see the extremes in America. I do not find that palatable. The gains from technology in America in the past 30 years went to the top 1% of income earners, which is not acceptable. Almost all of the gains, with some minor exceptions, went to the top 1%. We see what is happening in Greece where those on lower incomes are being squeezed to pay for the cuts. It is creating greater social tension. It is a major problem for a country to deal with that tension.

The solution in the Nordic countries to deal with the issue of low incomes is to create public sector employment. To finance public employment, the average tax intake in countries such as Sweden and Denmark is more than 50% and ranges from 53% to 55% of GDP. That is acceptable to the Swedes and the Danes because they trust that the Government is doing a good job by creating jobs in social care and so on. I cannot see something like that working in Greece in the current climate. I also cannot see it working in a country such as Britain because the electorate would find it completely unacceptable and would simply vote the Government down. This is a major problem. How much a government can do is down to politics.

However, we have solutions. I would like, and believe it would more acceptable, to have something like the system that is in place in the Netherlands where there is a good deal of support but the support is not the extent of that found in the Scandinavian countries, which I do not believe would be acceptable to voters in general. It is a case where the government needs to intervene to reduce the unequal outcomes that have resulted from the new technologies introduced. New technologies eliminate the layer of middle executives. The layer of middle executives and department heads employed in the manufacturing industries in big numbers are not compatible with new technologies. There are the very top people, the managers, the CEOs of the big companies, and then there is an army of people who do the work. Apple is the best example of this. The majority of Apple employees in the United States earn very close to the minimum wage. These are the demonstrators, the delivery people, those who work in the Apple stores, those who answer the telephones and those who chat to customers who want to buy products on the Internet. All those are Apple employees and they are proud to work for the coolest company in the world but they do not earn much more than the minimum wage. Then there are the top executives who earn millions of dollars every year. The layer of middle executives have been lost with the new technologies. The government needs to redistribute within that picture but how it does that it more of a political decision.

On the job losses that have occurred here, green investments for the greening of our buildings in particular should be subsidised because of the social benefits that ensue from them for the environment. It is a typical case in economics of a social benefit about which an individual would not care. One could tell someone to give more money to save the environment, to which that person would reply, "Why me?" A good test of this would be to check how many passengers contribute to airlines that invite passengers to pay another ¤20 to offset their carbon footprint. I do not know how many people take it up. If pressed to make a guess, I do not believe many people would take it up if they pay themselves but if one can claim expenses, one might pay the money and it might make one feel better.

12:45 pm

Photo of Ivana BacikIvana Bacik (Independent)
Link to this: Individually | In context | Oireachtas source

That is the psychology.

Professor Christopher Pissarides:

On the question of whether the move should be into the private sector in terms of social enterprises, I would give a similar answer to the one I just gave. If we look at the history of job creation and structural change taking place in the economy, something in which we have been more interested recently, the move has been increasingly to the health and education sectors, which are publicly funded. If we do not do anything with the private sector, taxation will inevitably increase to finance those jobs. We are moving in the direction of the Scandinavians in that respect. If that is acceptable to a country, there is nothing wrong with it provided a state is not corrupt. If higher taxes are not acceptable, as in the way we hear American politicians talking about that all the time, then we have to shift to the private sector because someone will have to provide the jobs. If it is done in the way the Americans have done it, an outcome of that is that health costs there have increased by a multiple of seven compared with all the other costs of services. The costs of all services there are increasing but health costs are shooting up. Compared with the mid-1980s, health costs there are seven times higher than the costs of other services. Britain is finding it cannot finance the National Health Service as efficiently as it was to able to do in the past and only last week it removed some restrictions on hospitals to go private. There was the usual opposition to that, others applauded it and the Minister said that they are hoping the extra money the hospitals will make from private medical care will be used to enhance the NHS. I cannot believe that if one makes money from one's private consultancy one will put it back into one's job if one is an employee of the government. That is a big problem.

There is no advice one can give about reviving the retail sector other than to revive the economy. That sector is the biggest measure of how the economy is doing. If people do not go into shops to buy products, jobs will not be created. One could try to introduce some job sharing schemes similar to the type Germany has tried to introduce and they have been successful. Another measure is to give incentives to employers not to lay off part of their workforce. It is not expensive for the government to do that. There is the impression that it is expensive because money is given to the employer but it avoids the subsidisation of the unemployment through unemployment benefits. If one has 100 employees and because of a fall in business one decides to let 20 of them go, instead of the government financing the employment of those 20 employees and providing initiatives for them, that money could be given to the employer and it could be asked to keep those 20 staff employed and to share out the jobs. It would reduce labour productivity for a short period but it is a much better way of doing it than increasing unemployment.

Regarding practical advice on investment, as I said, the budgets should be split because that will encourage investment. On the question of whether servicing the debt is sustainable, that is a can of worms we better keep sealed. Japan has a debt of 240% of GDP and no one thinks it is unsustainable, therefore, there are ways of financing big debts without defaults but I do not know how one could do that.

On the question of whether we are educating people in the wrong disciplines, I do not think so apart from the issues we discussed earlier in encouraging more interaction between local businesses and schools to make sure they get the right skills. In good times young people were not leaving the country. People are leaving now because of the recession and because Ireland has always had a very mobile population. It is an issue on which I disagree with the European Commission. The European Commission wants to encourage this kind of emigration. In fact, Ireland might discover during its Presidency of the EU that it is the champion of Europe in terms of migration. The Commission wants to encourage more migration from the high unemployment countries to the low unemployment ones. I do not believe that will be good for European countries. I do not believe it will be acceptable. I do not know what the outcome will be if Germany suddenly discovers it is being invaded by people from southern Europe the way it was in the 1950s with the guest workers. It is not something that works here. Even in the United States migration has decreased enormously. Giving people incentives to stay here would be a good idea. It is not something the European Commission would be happy to hear but it would be better in the medium to longer term.

In terms of what we do about the long history of unemployment, Ireland needs something to break that and education is the best way of doing it. It is very difficult to do it when there is no education mentality in the family or they believe it is useless. More positive incentives such as better grants could be offered, but education is the only thing that breaks that vicious cycle in the family.

Photo of Fidelma Healy EamesFidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

Community employment schemes.

Professor Christopher Pissarides:

Community employment schemes such as the short courses I mentioned in community colleges.

12:55 pm

Photo of Maurice CumminsMaurice Cummins (Fine Gael)
Link to this: Individually | In context | Oireachtas source

As Leader of the House in the 24th Seanad, I am honoured to welcome Professor Pissarides. I am delighted that he was able to accept our invitation to address us today. He is a welcome guest. His address has been most informative and engaging for Members. The problem of youth unemployment is raised regularly in the House, particularly by its youngest Member, Senator Kathryn Reilly. I am glad the topic has been addressed, as it is one with which I am personally all too familiar as my native city of Waterford has the highest unemployment rate in the country at 22%. It is disheartening to see far too many of our young people emigrating or the less fortunate slipping into the downward spiral of hopelessness in which so many of the unemployed find themselves. It is the hope of all of us that the current Government programmes of assistance and general policy in this regard will sustain them until such time as we see growth again in the economy and the corresponding job creation. We have all learned a great deal from Professor Pissarides and I know that many of the sentiments he has expressed will be relayed to the relevant Ministers in our debates with them in the coming weeks.

I welcome to the Distinguished Visitors Gallery the Cypriot ambassador who has been present throughout the debate. His Excellency is very welcome and we are delighted to see him here. I also acknowledge the presence during the debate of Deputies Stephen Donnelly and Bernard J. Durkan who listened to the debate in the Visitors Gallery.

I acknowledge and thank Senator Sean D. Barrett and his staff for their assistance in arranging Professor Pissarides' visit. I wish him well in his deliberations at Trinity College Dublin this evening which should prove most enlightening for all concerned.