don thornhill egfsn presentation 25

8/2/2019 Don Thornhill EGFSN Presentation 25

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Economic Context for Skills DevelopmentOverview of Irelands Competitiveness

Don Thornhill, Chair

National Competitiveness Council

National Skills Conference26 October 2006


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What is Competitiveness?

National competitiveness refers to the ability of firms basedin Ireland to trade in global markets.

Competitiveness is partly about costs, prices and wages

but more about better business performance throughinnovation and productivity

Competitiveness remains a foundation for nationaleconomic and social progress


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Irelands International Competitiveness Rankings

Where does We Stand Internationally?

Source: WEF & IMD

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006

WEF IMD


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Irelands Strengths

Ireland continues to attract high levels of overseas investment Competitive personal and corporate tax rates

Strong labour force growth, reflecting both natural growthand immigration

Improving school completion and third level participation

rates Relatively low levels of regulationbut perceived to be

increasing

High rates of entrepreneurship

High levels of public investment Productivity levels in modern, export-orientedmanufacturing and services sectors are high by globalstandards


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Strong Labour Force Growth

1000

1200

1400

1600

1800

2000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Employment Short Term Unemployment Long Term Unemployment

Thousands of persons Source: QHNS, CSO


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Net Migration per 1,000 of Population, 1995-2004

4.3

-0.2

1.8

3.1

-0.2

0.5

9.4

-0.5

4.2 4.1

-1.0

0.7

-2

0

2

4

6

8

10

Ireland Northern Ireland EU 15 US NEU 10 Japan

Migrantsper1,0

00

ofpopulation

1995-1999 2000-2004

Source: International Migration Outlook 2006, OECD


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% of the Population Aged 20 to 24 having Completed

at Least Upper Secondary Education (2005)

61.3%

71.0%

72.9%

74.1%

74.6%

76.0%

77.1%

82.8%

83.3%

84.8%

86.1%

87.8%

90.0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Spain

Germany

Italy

EU 15

Netherlands

Denmark

UK

France

Hungary

Finland

Ireland

Sweden

Poland

Lisbon

Target

85%

Source: Structural Indicators, Eurostat


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Population by Age Cohort that has at Least

Third Level Education, 2003

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

EU 15

Ireland

UK

OECD

US

25-34

35-44

45-54

55-64


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Irelands Weaknesses

Irelands international trade performance is weakening Ireland is losing employment in manufacturingover 32,000 job

losses since 2000

Too few Irish start-ups develop real scale

Erosion of Irelands cost competitiveness

Poor (but improving) infrastructure - road, air, seaports, waste andenergy

Low levels of domestic competition and productivity in manydomestically trading sectors

Average national educational performance

Dual labour force and low levels of engagement in life long learning Young and undifferentiated R&D system

Not maximising the potential of ICT


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Irelands Share in World Merchandise and

Services Trade, 1993-2005

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Services Merchandise

Source: WTO


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Erosion of Irelands Cost Competitiveness

Labour Cost Growth Rate, 2000-2005

79.0%

55.3%

42.0%

29.6%

26.4%

24.4%

23.8%

23.4%

22.5%

22.1%

18.4%

15.1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Hungary

Czech Republic

Poland

Ireland (Q2 2005)

France

EU 25

Austria

Euro-zone

UK

Sweden

Denmark

Germany

Growth in Labour Costs, 2000-2005

Source: General and Regional Indicators,2006, Eurostat


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Not Maximising the Potential of ICT

Computers per 10 Students (mean), 2003

0.7

0.70.8

0.8

1.1

1.3

1.4

1.6

1.7

1.91.9

2

2.2

2.3

2.3

2.3

2.7

3

0 0.5 1 1.5 2 2.5 3 3.5

Poland

PortugalGermany

Spain

Ireland

Italy

Netherlands

Sweden

Finland

DenmarkJapan

OECD

Austria

Hungary

New Zealand

UK

Korea

US


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Current Assessment of Competitiveness

Using GDP and GNP growth figures, Ireland is still competitive However, growth since 2000 has changed in nature and it does not

necessarily reflect improved international competitiveness

Domestic demand is driving growth, driven:

rising national confidence,

high rates of borrowing,

low interest rates,

a shift towards services, and

greater international competition.


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Dominance of Domestic Demand

-2%

0%

2%

4%

6%

8%

10%

1990-95 1995-2000 2001 2002 2003 2004 2005e

Government Consumption Investment Net Exports


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Grounds for Concern

1. Loss of internationally trading businesses Ireland share of world markets in decline, particularly in manufacturing

Current account deficit is growingIrish residents are spending more thanthey earn

Loss of 32,000 manufacturing jobs since 2000replaced by jobs in

construction and the public sector

2. Irelands debt burden

Ireland has very high levels of household indebtedness

And Irelands indebtedness continues to grow rapidly

while interest rates are increasing


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0%

20%

40%

60%

80%

100%

120%

Italy

Greece

Belgium

France

Austria

Finland

Euroarea

Portuga

l

Spain

German

y

Ireland(GDP

)

Netherland

s

Ireland(GNP

)

2003 2004 2005 2006f

Grounds for ConcernHousehold Debt


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Grounds for ConcernConstruction

3. Dependence on the construction sector

By the end of 2005, over 13 per cent of Irelands employment was accounted

for by the construction sectorhigher than any other OECD country and over

twice the rates of the USA and Germany.

As Irelands housing needs and infrastructural deficit are addressed,

constructions exceptionally high share of economic activity and employment

can hardly be sustained.

Are these skills transferable?


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4. Costs Ireland has experienced a loss of international price

competitiveness, reflecting both higher inflation and a worseningof our trade-weighted exchange rate

Consumer prices: Ireland is both an expensive country and one

where prices continue to rise faster than in most other EUcountries

Labour costs, largest cost category for business: costs havegrown at faster rates than experienced in other euro-zoneeconomies

Non-labour costs: NCC research highlights the relatively highcost of property and utilities, including electricity, mobilecommunications, and waste disposal in Ireland

Grounds for ConcernBusiness Costs


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Grounds for ConcernExternal Risks

Long run economic growth depends on success in exportsmarkets

Over time, the Irish economy must shift back from the currentdomestic driven phase of economic growth towards export-ledgrowth

Also need to be aware of external risks, such as: Further rises in oil and energy prices

House price volatility throughout the OECD

A further weakening of the dollar, which would affect the costcompetitiveness of Irish exporters


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Five Key Policy Challenges: Productivity

1. Need for enhanced productivity growth across all

sectors of the economy

Productivity growth has slowed considerably in

recent years Investment required in all levels of education system

Investment in infrastructure - including broadband

Cost reduction


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Five Key Policy Challenges: Competition

2. Promotion of competition

Costs of doing business in Ireland high, particularly

for utilities, communications, property and key

professional services

Nationallyremoval of government and sectoral

restrictions on competition

Internationallypromotion of free trade and workwith others to get Doha back on the rails


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Five Key Policy Challenges: Tax System

3. Securing the competitiveness of the tax system

International trends in relation to tax have changed

Irelands model is being adopted elsewhere Broadening of the tax base

Efficiency of public services


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Five Key Policy Challenges: Innovation

4. Improving the capabilities of our companies to

move up the value chain

Pursue with relentless determination theimplementation of the strategy for science,

technology and innovation, and initiatives to

enhance management capabilities


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Five Key Policy Challenges: Skills

5. Meeting Future Skills Needs: Globalisation and ICT

Fears around outsourcing and automation

But not all jobs can be outsourced, and ICT both substitutes

and complements human skills

Growing demand for skills that require expert thinking and

complex communications

Evidence (Levy et al) suggest a hollowing out of moderately

skilled jobs that are routine in nature and rule based


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Five Key Policy Challenges: Skills

5. Meeting Future Skills Needs: Implications for EducationNeed to retrain existing workers at risk

Need for strong basic skills and competencies

Basic competencies needed to develop more advanced skills

Quality and effectiveness of the teaching of maths and sciencenewstrategies?

Need for advanced skills

Need for attention to problem solving and interpersonal skills

Understanding and rote learning

Implications for teaching resources and the format of examinations?


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Conclusions

Irelands national competitiveness has been central

to Irelands success

Ireland needs to recover some its lost export

competitiveness

a skilled, adaptable and knowledge intensive

workforce is essential

don thornhill egfsn presentation 25

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