Saturday, January 29, 2011

Irish Vs. Icelandic Labor Market Developments

When people argue that Iceland has performed better, or more correctly less bad, than Ireland they use the fact that unemployment in Iceland has risen less while employment has dropped less than in Ireland.

This is true. The unemployment rate in Iceland has increased "only" 5.5 percentage points (from 1.9% to 7.4%) during the last 3 years, while employment has dropped 7.6% relative to the population (from 80.1% to 74.0%).

The unemployment rate in Ireland meanwhile increased by 8.9 percentage points (from 4.7% to 13.6%), while the employment rate has dropped 13.3% relative to population (from 61.05% to 52.95%. This number it could be noted is in part lower than in Iceland because the population it is compared to include people older than 65).

However, the situation for those that are still employed has developed much more favorably in Ireland than in Iceland. In Iceland, the average work week has dropped by 6.1% while real average hourly earnings are down by 8%, meaning that real average weekly earnings have dropped as much as 13.6%.

By contrast, the average work week in Ireland has dropped by only 2.4%, while real average hourly earnings are actually up by 1.7%, meaning that real average weekly earnings dropped by only 0.7%.

Average labor market earnings for the entire population, which is a function of how the employment rate and average real weekly earnings, thus ended up falling a lot more in Iceland,  20.2%, than in Ireland, 14%.

Clearly, the Irish situation is very bad, but the Icelandic situation is even worse, "despite", or more accurately because of its massive currency debasement.