On Monday, the Department of Social Protection released figures showing that 1.1m people were on the Live Register of Unemployed (226,000), in receipt of the €350-a-week pandemic unemployment payment (466,000) or, via their employers, receiving the temporary wage subsidy (410,000). These were the figures after some restrictions had been lifted and the total was higher a few weeks back.
The numbers working in the private sector unsupported by the State have roughly halved
To this 1.1m total, relying on the State for all, or a substantial portion, of their weekly income must be added around 300,000 directly employed in public services, giving a grand total of 1.4m compared to a total in all employments in the first quarter of around 2,350,000.
The numbers working in the private sector unsupported by the State have roughly halved.
This is universally acknowledged to be temporary but is anyhow unsustainable for reasons beyond the crushing Exchequer cost, while trade unions and industry lobby groups are calling for the support measures to be extended and supplemented with new ones.
A report just released from the Restaurants Association of Ireland argues for a lot more than the continuation of payroll subsidies. There should be exemption from rates and VAT for a couple of years, liquidity supports, tax holidays, forbearance from the banks, a boost to demand.
Airlines and airports are laying off staff
Restaurants and pubs have taken a severe hit to be sure, but no government anywhere can contemplate propping up both the firms and the customers indefinitely. The food and beverage sector employs almost 5% of the workforce, but that leaves 95% elsewhere, some of which sectors have serious problems too. Airlines and airports are laying off staff. It looks like a downturn in construction cannot be avoided and the retail distribution outlets are struggling. So are hotels and parts of the professional services sector, not to mention agribusiness.
A more troubling concern is that the new, post-COVID-19 economy will be different and must be planned for when the new Government unveils its economic strategy
IBEC, the main business representative body, wants supports for SMEs to be quadrupled across all sectors, with 100% credit guarantees and an interest-rate holiday. While the Irish Government and others across Europe were right to push budgets into deficit, in Ireland by possibly as much as €30bn for this year with more to follow, permanent large deficits are not sustainable in the real world – ask Greece.
A more troubling concern is that the new, post-COVID-19 economy will be different and must be planned for when the new Government unveils its economic strategy. It was never likely that the economy would awake from the coma imposed by the public health emergency and simply spring back to life in precisely its old form, rather as it does after a few days’ slumber every Christmas.
Some business sectors will be permanently smaller – there may be no recovery to former activity levels in some branches of retail, for example, where online competition has stolen a march and the pub trade was contracting around the country and even in parts of Dublin, long before COVID-19 struck. There is no point offering long-term support to lame-duck businesses which would not have survived anyway, however loud the chorus from the lobby groups.
A study by Allianz, the German insurance giant, concluded that one-fifth of the jobs around Europe currently supported by schemes like Ireland’s temporary wage subsidy are not sustainable – nine million jobs in total. The sectors most at risk, according to Allianz, are the same familiar list: travel, hotels, retail and the entertainment business.
If the demand for business and leisure travel has shifted to a lower trajectory, there is nothing governments can, or should, do to prevent this
A blanket subsidy policy aimed indiscriminately at every firm in these sectors will keep zombie firms alive, including firms that would have gone under without COVID-19 and ones whose business viability is compromised. Consumer tastes have been altered permanently – the post-COVID-19 economy, even if it recovers fully in a few years, will contain all existing firms only if they are kept on artificial life support. If the demand for business and leisure travel has shifted to a lower trajectory, there is nothing governments can, or should, do to prevent this, aside from making sure not to waste money on futile subsidies to uneconomic airports and airlines. Keeping marginal pubs and restaurants open does no favours to the more viable ones in the same town.
Public debt
Even in normal times with the economy doing well, firms contract or go bust all the time, to be replaced with expansions into new and expanding sectors. At some stage, governments will have to withdraw the wage subsidies and the other emergency measures.
Governments will need to redirect support to training and reskilling workers
The towering public debt mountains around Europe cannot be sustained unless economic growth eventually resumes and that will not happen if too many zombie firms are kept alive.
The Irish Government, whenever one is formed, should resist the calls from the IBECs of this world for undiscriminating corporate welfare. Governments will need to redirect support to training and reskilling workers, to infrastructure investment and away from rescuing zombie firms, however insistent the short-term populist appeals.