Belfast Telegraph

Saturday 27 December 2014

Job market staying strong despite our recovery lagging behind Great Britain

Jobs have been protected by a squeeze on real earnings levels for people who are in employment.
Jobs have been protected by a squeeze on real earnings levels for people who are in employment.

The Northern Ireland economy is recovering. Employment opportunities have improved. Here, the dynamics of the changes are not as strong as in Great Britain.

The persuasive headline summarising the changes in the UK economy is that it has recovered to the output levels reached before being hit by the recession. Domestic production has increased and now gone ahead of the level it reached before the recession. Output in the UK fell by 8% in less than two years and since 2010 has increased again to make up that lost ground.

Northern Ireland experienced a sharper recession followed by a much slower recovery.

From 2007 to early 2012, the composite Northern Ireland index of economic activity fell by 15%. The recession lasted longer than in Great Britain. Since then, output has recovered by only just over 2%. Output in Northern Ireland in mid-2014 is estimated to be 13% below the pre-recession peak.

Expressed rather differently, economic output in Northern Ireland in mid-2014 is down to the level reached earlier in 2003.

The contrast between here and Great Britain is stark. One contributory factor making the Northern Ireland results differ has been the exceptional fluctuation in construction activity. Construction activity early in 2014 is down to nearly 50% of where it was in 2007. However, that feature, heavily influenced by the boom and bust in new housing, does not account for the overall Northern Ireland production gap.

The evidence in Northern Ireland of a sharper fall in output followed by a slower recovery can be further traced into the impact on employment and earnings.

The recession in Northern Ireland has been noteworthy because the jobs market has not followed the changes in output as closely as might have been expected. A somewhat more stable jobs market, over the last 10 years, tends to obscure large ups and downs from one year to another.

Employment in 2014, at 712,000 people, was 5% higher than in 2008. However, from 2004 for each of four years, employment increased by over 10,000 people. Then in the next four years, 2008-2012, there were annual reductions of nearly 10,000 each year.

More recently, in the two years up to 2014, annual increases were again nearly 10,000.

If employment had followed changes in output more closely, from 2008 to 2012, pro rata, there might have been 12% (or over 80,000) fewer employees: in the event, employment only fell by nearer to 6%.

Since employment stayed at higher levels than might have been predicted, in turn, that correlated with a fall in output per employee (sometimes approximated to productivity). This fall in productivity is easily demonstrated from the output and employment details. Output per person employed (in aggregate) fell by 11% in the period from 2007 to 2014.

Consistent with the productivity reduction, real earnings levels for people in jobs have fallen year-by-year since 2009. The calculation is approximate but, early in 2013, average earnings of people in full-time jobs in Northern Ireland corrected for inflation (or the CPI) were down by over 7% in real terms.

A large caveat is merited. An overall Northern Ireland analysis, using aggregate figures, inevitably takes no account of other internal factors affecting the outcome. For example, the experience of the public sector has differed from the private. The relative outcome on jobs and earnings seems to point to greater private sector job changes, contrasting with the public sector.

In short, Northern Ireland GDP has weathered the recession less successfully than the experience in Great Britain. Output has fallen more and is recovering much more slowly. Employers have been prepared to maintain jobs at higher levels than output would normally sustain and the labour market has benefited.

However, sustaining employment seems to have been a trade-off with a much tighter grip on pay rates. Jobs have been protected by a squeeze on real earnings levels for people who are in employment.

Company report: Thompson Aero Seatin

Thompson Aero Seating is a relatively new and successful business which has been established and expanded in premises in Craigavon.

The company designs and manufactures aircraft seats for the commercial airline industry.

From small beginnings, five years ago, it has attracted business as a competitive supplier in the aircraft sector and has assembled and trained a workforce with demanding skills.

Annual turnover has increased significantly each year and, in the year to March 2014, reached nearly £27m.

The business has combined success in building its order book with an ability, having started to trade profitably, to step up its operating and pre-tax profits proportionately.

As employment and sales have increased, the business has retained its profits to finance development. In contrast to many other businesses in the early stages of expansion, the company has managed to avoid significant external borrowing to provide working capital.

The strengthening of the company's financial base is reflected in the increasing balance sheet value of shareholders' funds. The company has retained post-tax profits in the business and there have been no dividend allocations to shareholders in the period to March 2014.

Part of the capital investment programme has been assisted by access to assets financed by hire purchase funding.

In the report from the company directors, the two principal risks that were identified for mention were a currency exchange risk and a possible product liability arising from customers warranties.

These risks are, of course, expected in a business where customers may trade in non-sterling currencies and where customers will expect product guarantees in the supply of aircraft seating.

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