I thank the Chairman for the invitation to appear before the committee today and for the opportunity to discuss the national reform programme. I am joined by my colleague, Dr. Edgar Morgenroth. Between the two of us our research interests cover topics such as macroeconomics, labour, demographics, infrastructure and regional development so we hope we will be able to answer a wide range of questions which the national reform programme, NRP, might prompt. However, as the NRP is very broad in its scope, it is also likely that there will be questions which we are not able to answer so let me apologise for this in advance.
As part of these opening remarks, I would also like to say that the ESRI sees engagements such as this as very much part of our mission. We aim to contribute to the evidence base that underpins policy and also to communicate that evidence directly to those involved in policy-making. For these reasons, the committee's invitation is very much appreciated from an institute perspective.
The national reform programme forms part of the EU semester. As members of the committee will be aware, Ireland’s emergence from the bailout meant that we became full participants in the EU semester and so the national reform programme now includes responses to the country-specific recommendations that are issued by the European Commission under the economic governance arrangements. The NRP also includes discussions of progress in respect of the Europe 2020 targets and the use of European investment and Structural Funds.
Before discussing specifics issues, it is worth reflecting for a moment on the value of a process through which Ireland must discuss policy reforms with the European Commission and where there is an interaction in the form of country-specific recommendations and responses. An exercise such as this can add to the overall quality of policy formation and represents another route through which the European Union can have a positive impact on Ireland’s economic outcomes. Thinking back to the 1990s, the value of EU funding under regional and structural funds was normally thought of in terms of the direct spending and the construction of roads and other forms of infrastructure. Less attention is typically given to the evaluation culture which the EU imposed whereby projects had to be evaluated before being funded, at the mid-point of the funding cycle and on completion. It is not clear that Ireland would have imposed such rigorous processes on itself.
Fast-forwarding to 2015, the EU semester has the potential to force policy-makers in Ireland to think about key policy challenges in a focused way and to ensure that policy is targeted at those challenges. As with many aspects of life, an outside perspective, in this case from the European Commission, can be valuable both in terms of defining challenges and in proposing solutions. While the process can be of value, the value can be diluted if the approach taken by policy-makers is merely to generate a sense of action in the areas of concern by listing programmes without any reference to the actual or likely impact of those programmes. Putting this another way, a document such as the NRP can look impressive in terms of the range of measures that are presented but the more challenging question always relates to impact.
Turning to some of the policy issues, I will select just a few by way of illustrating some themes. It is difficult for us to predict which of the many areas covered by the NRP are of particular interest to the members so Dr. Morgenroth and I look forward to discussing specific interests and concerns in response to your questions. The first country-specific recommendation discussed in the NRP relates to budgetary matters. I understand that these matters are covered more intensively by the Joint Committee on Finance, Public Expenditure and Reform but it would be difficult for two economists to remain completely silent. In that context, I would note that while the new fiscal-budgetary framework can be criticised, the principles of fiscal prudence which underpin the framework are laudable. Much of the country-specific recommendations on this point can be viewed as urging the Government to abide by the framework. This is important, especially as an election looms.
The third country-specific recommendation relates to the labour market and activation and echoes calls that will be familiar to people who have followed this debate over the years. Going back to the pre-crisis era, Ireland’s activation policies were criticised along two broad lines. First, and this was argued by the OECD in particular, the connection between benefit payments and activation measures was too loose, especially in operational terms. The Department of Social Protection paid the benefits and FÁS organised training and employment services. The creation of the Intreo network of offices is a positive move in this direction and methods of engagement with clients have improved too. Following policy advice and technical inputs from the ESRI, there is an increasing use of statistical profiling to direct job seekers earlier to interventions that are more likely to meet their needs. The second broad strand of criticism of activation services related to the quality of the training programmes being offered. Much ESRI research has shown that training programmes for the unemployed were most effective when they were clearly oriented to labour market demands. SOLAS, the successor to FÁS, is aware of this and is striving to improve its offering. However, ongoing evaluation will be needed to assess whether their new orientation is working.
The fourth country-specific recommendation relates in part to a perceived low-job intensity of households in Ireland and it is useful to spend a few moments on this. The ESRI conducted an analysis a number of years ago which appeared to show a high level of jobless households when compared to other EU countries. The analysis was based on data from the European Union survey on income and living conditions which is collected by the CSO in Ireland. The research finding led to much discussion and concern, as evidenced in part by the inclusion of the issue in the country-specific recommendations. When the analysis was repeated using data from the Quarterly National Household Survey, a different picture emerged and Ireland no longer seemed to be such an outlier. This is commented upon in the NRP with a reference to further ESRI work on the topic.
The first lesson to be drawn from this is the need to understand why two data sets collected by the CSO can yield different answers. This is already occurring. The second lesson is the need to use alternative data sources to explore issues, especially when surprising results emerge. Before leaving the issues of jobless households, I would like to draw attention to one issue which is discussed in that section of the NRP. There is a reference to research by our colleague, Tim Callan, and others which shows that there is generally an incentive for job seekers to take up work when examining social welfare replacement rates. This is an important finding which we might return to in discussion.
I have not touched on all the country-specific recommendations and responses to them as time and a lack of expertise work against me. However, before concluding these opening remarks, I would like to raise a number of issues with respect to the material in the NRP on progress towards the Europe 2020 targets. With respect to employment, there is clearly good progress being made but I would raise two concerns. First, as the long-term unemployed remain in that situation for longer, their prospects of returning to employment diminish. Even in the context of growing employment, the long-term unemployed will have to compete with school leavers, returning emigrants and immigrants. For this reason, we need to be sure that the activation services are working even for those who are difficult to place. Second, while the employment target is stated in terms of the group aged 15 to 64, a big labour market challenge in the context of population aging is to increase employment among those over the age of 65.
On education, I was struck by a sentence on page 51 where it says, "there is clear evidence that the DEIS programme is having a positive effect on tackling educational disadvantage". While the statement is not untrue, there is a danger that it gives an overly straightforward assessment. A research review by our colleague, Emer Smyth, and others gave a much more nuanced assessment of the programme. I will take the following quote for illustrative purposes:
[T]hese National Assessment data indicate an improvement for all primary (DEIS and non-DEIS) schools, most likely reflecting the impact of the literacy and numeracy strategy. Using these data as a reference point for DEIS schools, [and this is the important part of the quote], the achievement gap between urban DEIS and non-DEIS schools does not show any marked improvement over time.
My broad point here refers back to my earlier remarks. It is important that the impacts of policies are carefully communicated in order that improvements can be made.
As a final comment it is important to mention three things that are generally absent from the national reform programme. The first is housing, the second is population ageing and the third is regional development. Constrained housing supply represents a serious challenge and a threat in terms of competitiveness. Population ageing is a major looming issue and ideally all policy documents of the nature of the NRP should reflect this. Finally, the perspective of the national reform programme is of course national. However, we know that development differs regionally and we might explore this through questions from committee members. Again, I thank the committee members for the invitation to make a presentation and we look forward to your questions.
