Some commentators claim that the UK-Ireland unemployment
differential can be accounted for solely by the monetary policy differential.
source: Eurostat |
But is that so…? Well, few things in life can
be easily and conveniently packaged in one sentence statements and one chart
explainers so that they look good in mass media.
I
want to take a look at sectoral job losses
along with “a few” other charts and maybe try to shed some light on the
subject
or just confuse you even more. I choose to use just three sectors
(manufacturing, construction, retail trade&etc.) in the following
charts since these are the most significant and employment there displayed the most volatility. Enough with that let the charts roll.
source: Eurostat, own calculations |
The
construction sector can be blamed for the bulk of jobs shed in Ireland.
source: Eurostat, own calculations |
The same
cannot be said about the UK, where job losses were more evenly spread across
the three sectors pictured.
Even that cursory glance seems to confirm that
the vast unemployment differential between the two countries can in its largest
part be explained by the popping of the property bubble in Ireland.
One could say that there was a property bubble
in the UK as well. Well, I don’t know if that goes for the whole of the country
of just for a few select parts of it or if it goes at all. In any case even if
one made that claim the distortions evident in Irish data are uncompared to the
ones in UK data.
source: Eurostat |
In a country where the manufacturing sector in
the 00s was indisputably large, investment in dwellings came to account for
more than 50% of total in the bubble’s heyday. This was not the case in the UK.
The extreme distortions present in Ireland in the
00s can be discerned in sectoral employment data as well.
source: Eurostat |
At the bubble’s peak the construction sector
briefly surpassed manufacturing as an employer. Needless to say, this never
happened in the UK, which admittedly is much more de-industrialized than
Ireland is.
source: Eurostat |
Bear with me now, I’ve got a few more charts to
share with you. I want us to look at employment’s sectoral performance in the
two neighboring countries.
source: Eurostat |
source: Eurostat |
source: Eurostat |
The differential in construction employment
performance between the two countries is abysmal. So what is expansive monetary
policy supposed to do? Prevent such a monumental-sized bubble from deflating? Even
if someone thought this is possible is it really a preferable policy path? Moreover,
it is obvious that retail trade employment fared much better in the run-up to
the crisis in Ireland. A good question is how much of that performance was due
to spillovers from the property bubble, so the post-bubble hangover (i.e. depressed
activity) is evident here as well as in a few other areas I suspect.
That said, UK is thus far performing better
than Ireland in both the retail trade and the manufacturing sectors. Here,
maybe a more expansive monetary policy is one of the reasons this is the case,
along with a multitude of other reasons (different household and corporate indebtness,
different export propensity of the manufacturing sector, lower base in manufacturing employment, different levels of saving,
different states of the banking sector etc.). But are comparisons among those
two particular countries really that relevant…?
I think that such oversimplified statements
make little sense. Furthermore, the truth usually lies closer to the middle of
the road than at the two extremes. Sometimes commentators are eager to draw
comparisons to satisfy their ideolepsies. As I’ve said in the past, it sure is
easier to tap your keyboard than come up with sensible policy paths in the
current nightmarish juncture…
P.S. In the US, where most people agree that there was a property bubble and super-lax monetary policy was applied, construction employment undershot the average level of the past 42 years. My point is that this could not go very differently even if monetary policy in the Euro Area matched what some commentators define as expansive/easy.
P.S. In the US, where most people agree that there was a property bubble and super-lax monetary policy was applied, construction employment undershot the average level of the past 42 years. My point is that this could not go very differently even if monetary policy in the Euro Area matched what some commentators define as expansive/easy.
source: FRED, own calculations |