Rocking to the cycle

Recent job losses can only be understood in the light of cutthroat competition abroad, linked with the broad restructuring going on at home. On top of all that, our currency appreciated against the United States dollar by some 15 per cent in each of the last two years, and this has been particularly hard on labour-intensive production lines with a low value added, despite the small measure of compensatory depreciation against the euro.

A union's show of brawn and muscle will serve as no inspiration for foreign or domestic investors. Nor will the hint of political destabilisation by an Opposition and allied forces that desperately want to recover from referendum and election setbacks. Abroad, the kind of language we heard in last Tuesday's rally is being associated with fringe groups. Here, it will only repel, and not invite, job creation. It is an attempt to spread panic, as it sends out a muddled picture. For example, if the GWU really wanted to cut the fiscal deficit, how about a more honest and co-operative approach on overmanning in parts of the public sector?

The latest unemployment figure under part one of the register was 7,494 in December 2003, which compares with 7,437 in December 1998, following a two-year spell under Alfred Sant's first and only government. The employment figures for December 2003 will not be out for a while, but on the basis of recent figures, the number of persons employed has risen by some 3,500 since 1998. One should also keep in mind that over 1,000 workers listed in 1998 had opted for early retirement by last year, thereby artificially reducing the employment gains that actually took place.

The old-timers at the GWU should be asked to reminisce on events in the first half of the Eighties, before the country managed to shake off a Labour government which clung to power on the back of "perverse" electoral results. At the end of 1982, 1983 and 1984, unemployment stood at 10,356, 10,283, and 10,448.

No, those were not Labour Force Survey figures, based on the number of self-declared unemployed, measured through the statistical methods required by the European Union but as it turns out still dear to the heart of the other side, when it wants to dramatise the situation. No, those 10,000-plus statistics were the hard count of unemployed registrants, when the gainfully occupied numbered some 26,000 or some 24% less than today's.

The footnote in the old Central Bank Quarterly Review that served as my source reminds us that the measured unemployed did not include some 4,500 recruits in the various labour corps that kept the unemployed off the streets and disguised a terrible combination of severe unemployment and underemployment.

GWU old-timers surely remember Dr Sant's contribution to It-Torca on January 30, 1983. He called for companies to be given special dispensation to cut wages below the legal minimum, against a provision for some sharing of profits when things get better. Those who now accuse the government of lacking a conscience for tolerating a higher rate of unemployment should explain how workers back then were supposed to put food on the table and meet their bills on a reduced minimum wage.

One wonders how the proponent of liberation theology at the podium at Tuesday's demonstration could share the stage with the one who two decades ago asked for dispensation for companies to go below the legal minimum wage. Wasn't that proposal more "sinful" than what the government is being accused of these days? And was not the proponent of the cut in wages the same one who wanted to raise electricity and water rates into the stratosphere some 13 years later? Did the GWU threaten to "rock" the Labour government that it was married to back then? Hardly!

By now, the other side will have made ample hay out of the Labour Force Survey figures that came out on Friday. Like previous LFS data, the results are based on the responses of a relatively small number of randomly selected households. Their responses are then extrapolated to the entire population. Measurement or sampling errors are automatically amplified in large data swings. The latest survey reports that in September 2003, 13,166 persons declared themselves to the surveyors as unemployed, compared with 10,160 a year earlier.

In contrast, the ETC's combined part one and part two registers contained 7,942 names in September 2003, up from 7,520 a year earlier. Labour force sampling surveys consistently generate higher unemployment estimates than the head count of registrants. What is also to be expected is a greater volatility in the sampling results.

Interestingly, a comparison of the two sets of numbers poses a puzzle. According to the LFS, there was an increase of 3,006 in unemployed persons over the 12 months through September 2003. Reconciling this with the ETC results, you would conclude that out of this increase, 2,584 (86 per cent) chose not to register with the ETC, foregoing the financial or other benefits from registration.

Looking at previous LFS's, one notices earlier instances of a noticeable instability in the reported results. They reported the number of female unemployed as dropping from 4,160 in December 2002 to 3,399 three months later. However, it rebounded to 4,954 within the following three months. Similarly, male unemployment shot up from 6,626 in December 2001 to 8,415 in March 2002, only to plummet to 6,872 three months later.

There is a lot to commend in a statistical system that looks at the labour market from more than one angle. However, a valid interpretation of the results requires a proper evaluation of the relative shortcomings and advantages of the methods. This sort of task should be insulated from partisanship and political posturing. Don't get your hopes too high.

Another interesting result from this latest LFS points to different employment patterns in the private and public sectors. In the private sector, employment rose from 97,304 in September 2002 to 98,459 a year later. Meanwhile, according to the same survey, the public sector cut its payrolls by 3,515 over the same period. Like the unemployment figure, these numbers are subject to measurement and other possible errors. But don't expect a careful evaluation from those who stand to gain from misery and despondency and will readily shed a convenient tear or two.

European Parliament

This week at the European Parliament I attended a most interesting dialogue with the Irish finance minister, who currently occupies the presidency of Ecofin, the Council of EU finance ministers. After a brief introduction about the economic strategy of the Irish Presidency, the economic and monetary affairs committee focused on the issue of the stability and growth pact and its non-observance in part by two countries, namely France and Germany.

Mr McCreevy, the Irish finance minister, who is one of the longest serving ministers in Ecofin, argued that fundamentally, the stability and growth pact is not dead, as some would argue, but is still a crucial framework for the EU. The problem is that while a common currency requires a set of fiscal rules, it is these rules which need to be interpreted with care and not simply applied mechanically.

For example, in the current scenario with the euro appreciating significantly, the danger is not from inflation or any excessive growth in debt by governments, but rather the concern centres on not enough growth and deflationary impacts on the Eurozone economies.

Consequently, despite the recent court action by the Commission against Council, the same Commission is in the process of exploring what other criteria need to be considered, such as the overall level of debt and whether the debt is being used to finance current or capital expenditure. In the case of the latter, this would serve to stimulate the productive capacity and should therefore be taken into account. Similarly the question of the impact of the business cycle on government finances, and the implied automatic stabilising effects should be taken into account.

In other words, it appears that there is going to be some further reflection on what the stability and growth pact was really intended for and how it may be adjusted in a continuous learning environment of establishing the norms that should apply under a currency union.

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