Belfast Telegraph

Wednesday 20 August 2014

Northern Ireland economy is vulnerable in long-term

Northern Ireland may have protected jobs at the expense of wages

There are worrying signs that the Northern Ireland economy has been hard hit by the recent recession and, even more concerning, that the overall poor competitiveness of local businesses makes the economy vulnerable on a longer term basis.

There is a dangerous assumption that, as the UK economy improves, Northern Ireland will keep pace and maybe move ahead. This may be an illusion.

Increasingly, Northern Ireland is looking more dependent on a low-pay environment, rather than a higher value added gear change.

There is now official evidence of the impact of the recent experience on the various regions of the UK. It makes uncomfortable reading for two regions: Northern Ireland and Yorkshire with Humberside. The Office for National Statistics has published details of the way each of the UK regions has performed. The differential impact of the years of recession is unexpected and disappointing.

In statistical terms, if the overall average for the UK is indexed at 100, each region has been compared to that baseline of 100 in each year. If a region's performance is less than 100 that shows the basic disadvantage of lower average incomes for people in that region. The significance of the divergence is both as a measure of different average incomes but also, year by year, of how the differences are changing.

There is little surprise in the starting point in 2007. Northern Ireland has, for many years, lived with an average income gap of about 18%, or, using the UK index of 100, Northern Ireland would be expected to be about 82.

There is also little surprise that, in a UK league table, Scotland shows incomes generated of nearly 95% of the UK. Wales is similar to Northern Ireland at about 82. The region next closest to Northern Ireland is the North East of England at about 87.

The official statistics now confirm that Northern Ireland has been hit harder than other regions by the recent recession. Of the poorer regions, all except Northern Ireland had a less serious loss of output and income than the UK average.

In the six years from 2007 to 2012, Northern Ireland GVA per hour worked in 2012 fell by one percentage point relative to the UK total. Northern Ireland compared unfavourably with all other regions except one:

* Northern Ireland: down one percentage point

* Scotland: up two pp

* Wales: up 1.4 pp

* North East Eng: up 1.2 pp

* North West Eng: down 0.9 pp

* Yorks & Humber: down 3.1 pp

Northern Ireland was the second-lowest region in 2007. By 2012 it had slipped further and then had the lowest average GVA per hour worked across the UK. This comparison poses some difficult questions about performance and policy. How and why have Scotland, Wales and the North East of England improved their relative results during such a difficult period?

There is a second comparison which further complicates the picture.

Over this recent six-year period, when Northern Ireland's GVA per hour worked has fallen, Northern Ireland experienced a more stable labour market than some of these comparator regions. Whilst GVA has fallen, relative to the UK, employment here has increased by just short of 2%.

The changes in the labour market in other regions show a fall in employment in Scotland and in the North East and a modest increase in employment in Wales. Not only has Northern Ireland's GVA per hour worked slipped behind the other normal comparator regions, but this has happened alongside a more favourable job market outcome.

With more jobs, Northern Ireland has managed to produce, relatively, lower output per employee. Has Northern Ireland, partly through the public sector, managed to retain more employment with a lower than expected improvement in output per employee? Protecting jobs has been matched by lower average incomes.

This is not a confident assurance of improving competitiveness.

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