Economy Watch: The economic issues to occupy us during 2020s
The end of a decade is always a time to reflect. My children are shocked that this is the sixth decade in which I have been alive and I refuse to accept it is 20 years since the new century celebrations were in full swing and the millennium bug turned out not to be quite the world-ender it was billed to be.
Inevitably, there have been a lot of 'end of decade' lists and retrospectives as to what the last 10 years have delivered and predictions as to what might define the next 10. Thinking longer term is a useful exercise that I probably do not do as often as I should. When I am updating our forecasting models, the equations that drive long-term relationships rarely get as much attention as looking at the short-term projections that are most in demand by clients or the media.
Understandably, there is a lot more interest in what job or GDP growth will be in 2020 than in 2030.
The end of the last decade was right in the middle of the most severe global recession since the 1930s, unemployment was rising and the fact that outright collapse of the financial system had been avoided was viewed as a positive outcome.
Locally, the Executive was up and running and house prices had just fallen an unprecedented 40% with more to come. Entering the new decade, the economic mood is rather different.
It would be wrong to describe it as becalmed but it is certainly not in the state it was in a decade ago. Staggeringly, there are just 22,000 people classified as unemployed and about a further 60,000 are currently economically inactive (not in work or unemployed) but who identify as seeking employment.
There are close to 80,000 more jobs in the economy than there were five years ago (or 47,000 since the Executive collapsed). Given the global turmoil, Brexit and a lack of Executive, that appears a somewhat remarkable state of affairs.
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What will economists be working on in the decade ahead? There are a number of fascinating conundrums that will be the focus of many research projects and PhDs.
A few of the big questions that the industry is wrestling with include:
The productivity puzzle: it is well known that productivity growth has been very poor in the UK and Northern Ireland is no exception.
The recently updated GDP data is, very surprising when set against the employment data. In 2018, GDP fell 0.5% (sectoral GVA by 0.9%) and yet employment grew by 0.8%.
That is a very unusual state of affairs - firms hiring but making less money. Sectoral composition probably plays a part with high profile manufacturing closures likely to have an impact but, across 19 sectors, 11 experienced a fall in GDP and, of those, more than half enjoyed job growth.
A highly unusual trend. I remain very uncertain about the validity of the data available to measure employment and GDP, but there is no easy answer to why productivity growth appears trapped in the slow lane. A combination of poor measurement, sectoral change, lack of investment and changing working practices are likely to be all part of a complex answer.
Whilst on the subject of data scepticism, I would hope that the next decade brings a transformation in the data available to economists.
It is far from ideal that we rely on surveys to estimate how many people are working - and in what sector - when the tax records hold this data. The ability to know much more about our citizens and firms will not only help economists and really tell us what is happening but also help us to devise new, more effective, public policy interventions.
The low inflation world: ordinarily, a very tight labour market would increase employees' power which, in turn, would drive price increases, leading to higher inflation and, ultimately, to increased interest rates.
This has simply not been happening: inflation has been below 3.2% since early 2012 despite unemployment falling to its lowest level for 40 years. Potential oil price increases resulting from heightened tensions in the Middle East may provide a spike in early 2020 but the relationship between prices and the labour market is fertile ground for the economic researcher.
The return of fiscal policy: with interest rates remaining historically low, there is very little capacity in monetary policy to tackle any forthcoming downturn. The Governor of the Bank of England, Mark Carney, said as much in an interview with the Financial Times last week. He suggested less conventional policy tools will be needed.
Undoubtedly, it is true that fiscal policy is back en-vogue with infrastructure, health, justice and education spending commitments dominating political discourse. As a region, Northern Ireland is an example of what a sustained period of expansionary fiscal policy does - the results are best described as mixed.
The rise in self-employment: the measurement of self-employment is somewhat volatile but there appears to have been something of a surge in recent quarters. The number of self-employed jobs is more than 25,000 greater than it was a year ago, a staggering 25% growth. The number of people whose primary economic activity is self-employment up 17,000 over the same period.
A data mirage or a genuine change in the labour market? Just another one of the puzzles heading into 2020.
Disruption and creation: the fear that automation, robotics, AI and a raft of technological advances would be a threat to jobs would appear ill-founded, given the record low unemployment rate.
It is true the rate of technology adoption is accelerating and much of the labour market disruption lies ahead but, to date, more jobs appear to be being created than destroyed. This is good news for economic forecasters, many of whom use long term trend models of growth that rely on the assumption that, as labour is freed up, it finds another productive use.
The mismatch between the skills of those holding the jobs being disrupted and the requirements of the jobs being created may make this an unrealistic abstraction, but the evidence does not yet point to net job losses as technology adoption accelerates.
If we add the ongoing Brexit saga, clearly there is much to keep the economics fraternity busy in the decade ahead. The expectation is that the 2020s will be defined by the environment, quality of life as a measure of success and a reinvigoration of public services.
That is probably true, but the economic cycle may offer a challenge to the new focus. When jobs are being lost and an economy is contracting will be when the real test of society's commitment to improved public services and environmental progress will truly be revealed.
Mr Gibson adds: "This article was written before the welcome announcement of the return of the Executive. This long-awaited news is terrific and though there is much to do, like most people, I wish the new Ministers well and stand ready to help in any way I can."
In next week's Economy Watch, we hear from Paul MacFlynn of NERI