Employment predictions

There is no doubt that Mr Vince Farrugia attempted to attack my economic and statistical credibility when he tried to misrepresent the results of my model regarding the employment implications of a fall in our exports. He said and I quote: “With a 20% drop in exports according to his predictions we should by now have already suffered 15,000 job losses. The country would have been in a state of panic were his prediction to have come through.”

The results of my model were presented during a GRTU conference given last 16 December in the presence of the Prime Minister. Mr Farrugia was surely not paying attention to the mathematical caveats appearing on the same slide of the powerpoint presentation (PPP), which I included with regards to this multiplier. I did say that: A 2% annual fall was a simulation exercise of an across the board fall in all export-oriented industries including tourism. If this were to happen this would translate into an over 1,000 full-time equivalent job losses directly and half as much again indirectly. Furthermore this Leontief model is estimated for a given year and so the ratio of full-time equivalent jobs is to nominal value of exports in a given year.

The slide also said that the labour-intensive industries such as tourism, transportation and recreational and similar services are affected more, while the more capital intensive industries are expected to have a much lower employment multiplier effect than the estimated average of 1,000 persons.

Mr Farrugia ought to know that up to the end of 2008, according to the NSO national accounts statistics and as confirmed by Eurostat the percent fall in nominal exports of goods and services was of 5.6% and not of 20% as wrongly stated by Mr Farrugia. Furthermore the industry mostly affected was manufacturing and in particular ST Microelectronics and similar highly capitalized industries, which according to my model have a multiplier much lower than 1,000.

If he applied these obvious observations he would predict that the employment loss expected over the long run for the reported fall in exports would be more in the region of 2,000 direct and 1,000 indirect rather than the 15,000 exaggeration implied by Mr Farrugia.

Where shall we look for these expected 3,000 full-time equivalent lost jobs. Surely not just in the unemployment register. Unemployed persons according to Eurostat comprise employable persons who are without work during the reference week, are available to start work within the next two weeks, and have been actively seeking work in the past four weeks. Data are presented in seasonally adjusted form. Eurostat reports that between September of last year and March of this year there was a 1,500 increase in persons unemployed.

Where are the other 1,500 predicted by the model? Mr Vince Farrugia should know that full-time equivalent jobs are not persons but man-hours lost divided by 40 hours of work a week. This includes all overtime work and part-time work which has now been terminated. It includes jobs which were terminated by some early retirement scheme or other. It includes workers working on a four-day week which amount to over 2,000 in the formal sector and much more among the GRTU self-employed members who are finding themselves on a less than a four-day week. It includes workers in a number of companies with whom government has reached an agreement to retain workers and or revert to a five-day week (ST, etc). Taking all these working hours lost together we would be fair to translate these into at least another 1,000 full-time equivalent persons unemployed.

These total figures fall short of the 3,000 full-time equivalent predicted by the model and leave a balance of about 500. But everybody knows that next month and the in following ones unemployment is expected to rise further. The reason being that unemployment is a lag not a lead indicator. It takes many months of loss of sales during which first it will be profits that are eaten away. Only after that would employers resort to the unfortunate shedding of their staff. During the last three months of 2008, firms saw a fall of about €65 million in their profits. With that money they would have paid for 6,000 jobs.

I do hope that we get serious with statistics. I cannot understand why persons who enter politics should pretend they have a licence to start playing around with figures. I can assure the reader that whether in politics or out of it, I will never betray my academic training by using statistics frivolously.

Prof. Scicluna will be contesting the European Parliament elections on behalf of the Labour Party.


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