Economic Letters: Policy response to COVID-19 provides essential support to Western counties

• For Western counties, the policies to support household incomes and firms while restrictions remain in place are essential.
• In the short term, an approach that prioritises liquidity supports for firms, income supports for workers, and, above all, job retention is warranted.
• Active labour market programmes, including retraining where appropriate, will play an important role in helping to address the ‘re-employment’ challenge.

Today the Central Bank has published two Economic Letters. The first, written by Reamonn Lydon and Luke McGrath (of the Western Development Commission), entitled “Regional impact of COVID-19: Western Region & Atlantic Economic Corridor”, looks at the labour market impact of COVID-19 in the region. It shows the crucial role played by policies such as the Pandemic Unemployment Payment (PUP) and Employment Wage Subsidy Scheme (EWSS) in supporting household incomes and firms in the Western Regions.  The second Economic Letter, written by Enda Keenan and Reamonn Lydon, entitled “Wage subsidies and job retention” looks at how wage subsidies have supported job retention in recent months.

The analysis in “Regional impact of COVID-19: Western Region & Atlantic Economic Corridor” will assist policy makers in planning for economic recovery at a regional level. The regions examined in the Letter includes Clare, Donegal, Galway, Kerry, Leitrim, Limerick, Mayo, Roscommon and Sligo.

The regional dynamics of the COVID-19 labour market shock are influenced by pre-COVID employment patterns and structural factors. In particular, in Atlantic Economic Corridor (AEC) counties, there is a concentration of employment in tourism, traditional sectors, and public services. The policy response to COVID-19 provides essential support to Western counties. Workers in AEC counties are more likely to work in very small firms which may find it more difficult to adjust and be resilient to the COVID-19 shock, in terms of liquidity and cost management.

At the April peak, Kerry and Donegal had almost a third of their labour force in receipt of the PUP. Prior to the most recent restrictions, in early October, the same counties have also seen the largest percentage decline in PUP, with large numbers flowing onto wage subsidy supports. Early signs from the reintroduction of restrictions in September suggest a reversal of this pattern for the region. For Western counties, the policies in place to support household incomes and firms while restrictions remain in place are essential.

Rising unemployment and fewer job openings has led to a large rise in the number of unemployed persons per job posting (data from Indeed). This ratio is an important indicator of the scale of the ‘re-employment’ challenge. Nationally, the ratio has increased from three unemployed persons per job posting pre-COVID-19, to 14 by September 2020. In AEC counties there were 22 unemployed persons per job posting in September 2020.

The Letter concludes that caution should be urged in inferring that the challenge of the recovery from the COVID-19 crisis will be based purely on short to medium term COVID-19 exposure. The structural issues discussed in the Letter will play a key role in the recovery.

The second Economic Letter, “Wage subsidies and job retention”, looks at how wage subsidies have supported job retention in recent months. It shows how, during the phased re-opening workers in consumer-facing sectors – in accommodation and food, tourism, and some retail – increasingly moved onto the EWSS. At the same time, younger, female workers have increasingly taken up wage subsidy supports, whilst older males have moved off the scheme.

In the short-term, whilst the path of the virus remains unclear, an approach that prioritises liquidity supports for firms, income supports for workers, and, above all, job retention is warranted. Once there is greater certainty around health outcomes – a rolled-out vaccine, for example – it will be important to consider how the scheme can be structured in such a way as to help firms transition to a situation where they can be viable without State supports. The EWSS, along with potential considerations for future formats, can help with the transition. Allowing wage-subsidy supported workers who face a material risk of job loss in the future to engage with Active Labour Market Programs, including retraining and help with job search could also be beneficial.

Notes to editors

• This Economic Letter on the Western/AEC region was co-authored with the Western Development Commission.
• The full series of Economic Letters can be found here.
• The data are yet to reflect the most recent restrictions introduced in October, and we expect unemployment to rise in the short-term.  If increases reflect previous regional patterns – with larger numbers in particular in the likes of Donegal, Kerry, Mayo and Leitrim – this could exacerbate some of the regional differences highlighted in the Letter.