Jobs and productivity together the only way we’ll beat this recession
Polotics and business move in cycles in the US, as in Northern Ireland and elsewhere. And, not surprisingly, the US Presidents' State of the Union addresses have mirrored these cycles in terms of their messaging and policy focus.
At the top of the economic cycle, there is traditionally more emphasis on innovation and productivity and, at the bottom, the primary focus is much more tangible, namely job creation.
This pattern has been broadly followed in other economies, including Northern Ireland’s.
With regard to last week’s State of the Union address, while this was President Obama’s first, there was a sense of déjà vu, with employment creation the centrepiece, and the President stating: “Jobs must be our number-one focus in 2010”.
Indeed, Obama used the word ‘jobs’ 23 times, which was even more than Herbert Hoover used the word ‘employment' in his 1930 address during the early stages of the Great Depression.
Obama’s speech was also reminiscent of Bill Clinton’s first major presidential address, which followed his successful “it’s the economy, stupid” election campaign in 1992.
Clinton signalled that his immediate priority was to create jobs and stated “there is no recovery worth its salt that does not begin with new jobs”.
The emphasis on employment creation also resonates with President John F. Kennedy’s addresses in the early 1960s. In 1962, JFK proposed a number of labour market friendly proposals, including a Manpower Training & Development Act and a Youth Employment Opportunities Act.
Furthermore, JFK proposed that a given rise in unemployment should trigger an appropriate increase in capital investment programmes.
The latter has reappeared in Obama’s employment plans. He said “we can put Americans to work today by building the infrastructure of tomorrow”.
Another common message that appears at the bottom of the economic cycle is the goal of full employment.
JFK, Clinton and more recently Obama have included this objective.
However, the task of full employment in the current decade looks even more daunting, particularly for Northern Ireland.
In 1961, JFK noted that “the present state of the economy is disturbing”, a phrase that Northern Ireland and the US could relate to today.
Indeed, at the recent World Economic Forum in Davos, Obama’s top economic adviser, Larry Summers, used similar language to describe the current level of US unemployment.
In particular, he highlighted that one in five American men aged 25 to 54 is out of work and this 80% employment rate compares unfavourably with a 95% rate back in the mid-1960s. This provided a sobering reality check after the release of the fourth quarter GDP figures —which signalled the fastest rate of US growth in six years.
Summers noted that the US is experiencing a “statistical economic recovery and a human recession”.
This phrase provides a more emotive alternative to the term “jobless recovery” and pretty much sums up the situation in economies around the world, including Northern Ireland.
Northern Ireland arguably achieved full employment for the first time in the summer of 2007.
Since then, its unemployment rate has doubled and is currently just below 7%. And while this compares favourably with the US, like the US almost one in five Northern Irish males aged 25-54 is currently not in work.
Youth unemployment (those under 25 years of age) has also been a growing concern in both economies, with local youth unemployment rate hitting a record high last autumn.
Thankfully, the local Executive effectively adopted Clinton’s election winning slogan in its Programme for Government of 2008.
However, within the context of falling unemployment, the economic strategy moved away from job creation towards productivity — evident also in the recent Independent Review of Economic Policy (IREP), which could be best summed up with the slogan: “It’s productivity, stupid!”
However, the landscape has fundamentally changed, with the political and economic imperative returning once again to job creation. Like the US, increasing evidence will point to an economic recovery on paper, but the human recession is set to continue for some time.
As a result, the electorate and politicians will become more sensitive to tangible economic improvements such as jobs rather than technical (but desirable) improvements in productivity.
Clearly, the economic challenges identified in several State of the Union addresses strike a chord with the current challenges facing the local economy.
In particular, Northern Ireland would do well to follow JFK’s economic prescription of 1962 by focussing on: training; youth unemployment; increasing capital investment; and ensuring wages rise with improvements in productivity.
In this respect, Clinton, a long-time friend of Northern Ireland, might say: “It’s employment and productivity, stupid”, rather than a choice between one or the other.
Richard Ramsey is chief economist, Northern Ireland, at Ulster Bank