Ireland’s K-Shaped Recovery: Will The Rising Tide Really Lift All Boats?

“The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity”.

John F. Kennedy famously drew on this aphorism throughout his presidential campaign in 1959 and 1960. In an era of great uncertainty, the US of the 60’s faced the ominous dangers presented by war and nuclear threat. Comparatively, modern-day Ireland faces the daunting prospects of economic collapse and widespread poverty in the wake of COVID-19. Despite early hopes for a V or U- shaped recovery, a dual-track K-shape is emerging as the most likely recovery path from the current pandemic-driven recession, if recent Central Bank reports are anything to go by. Just like the Chinese writing of the word crisis, the diagonal strokes of the letter K represent two parts of the economy which are experiencing vast performance differences in the current climate. On the upward brush stroke lies well educated and skilled people employed in those industries emerging relatively unscathed, if not stronger, from the opportunities presented by COVID. Conversely, on the downward brush stroke of the K sit less-educated workers generally employed in old-line industries, such as tourism and hospitality, which will likely experience the repercussions of the crisis for years to come. Here’s what the K shaped recovery means for Ireland, how it will shape economic inequality, and how the government may try to counteract the economic and societal divides which it causes.

Constitution of a K-shaped Recovery

A K-shaped recovery takes place in the aftermath of a recession when different sectors of the economy begin to recover at different speeds, in different periods, or to different extents. What differentiates a K-shaped recovery from others is that it represents the track of separate disaggregated economic variables in relation to each other, such employment in different sectors or various income levels across society. In contrast, traditionally shaped economic recoveries, generally the distinct shapes of V, U, W, I, and L, detail economy-wide aggregate macroeconomic variables such as Gross Domestic Product, national employment rates, and inflation.

Ireland’s Twofold Recovery

On the surface, it seems as if Ireland could have one of the most exaggerated K-shaped recoveries globally. The recent Central Bank report highlights that the export-led sectors of the economy, spearheaded by IT and Pharma, are recovering at a quick rate, if not booming, while others such as hospitality and aviation continue to contract and bear the brunt of the crisis. This divide is reflected in the contrasting disaggregated economic variables we are currently seeing across different sections of society. The general shape of such differing performance levels across various sectors of the economy echoes the branches of a letter “K” when drawn together, with one declining and the other rising.

Outwardly, it appears that Irelands’ current economic outlook is not as bleak as was predicted in the pandemic’s early stages. On Friday, the Minister for Finance Paschal Donohoe announced that a general government deficit of roughly €21 billion is now forecast for this year: a gloomy number no doubt, but one which has exceedingly improved upon earlier forecasts of €30 billion. However, under further inspection, it is clear to see that Irish multinational exports are not only shielding the economy from the worst of the crisis, but also masking the growth in societal inequality which increases with every day passing day of the pandemic. As Gerard Brady, the chief economist with Ibec, said; “It’s not just a K-shaped recovery for businesses but households as well,”.

Fuelling an Unequal Society?

The Labour Force Survey or Quarter Two 2020, released by the CSO in the final week of August, revealed that employment in Professional Occupations had grown by 7% in July 2020 in comparison to July of last year. Furthermore, employment in Technical and Associate Professional roles grew by 10% in the year to Q2 2020, while Financial, Insurance, and Real Estate occupations increased by 17% in the same period. In comparison, employment in the blue and pink collar sectors has experienced vastly different fortunes during the same period. Employment in the Accommodation and Food Services sector fell by 30% in the year following July 2019, and by 12% in the Construction sector in the same period. Factory work and Skilled Trade employment also fell by 10%, while Sales and Customer service positions decreased by 11%. As Brady remarks, “People who have worked remotely tend to be higher educated professionals. The people who are going to lose or have lost in terms of employment are lower paid, younger workers and workers with fewer skills, training and education.”

Shrinking the Disparities

Ultimately, the government’s ability to bridge the divides presented by COVID depends largely on forces that lie outside the realm of their control. The longer the crisis continues without an adequate vaccine, the more businesses that will close their doors. An increasing number of workers will be left redundant with only their savings and social welfare to rely upon, likely to result in large scale debt across segments of society. With the prospects of an emigration safety net mostly limited in the current international climate, profound societal scar tissue will likely be felt for years to come. If the government hope to have any chance of combatting the two-speed recovery through export-led growth, they must ensure that those workers on the upward brush stroke of the K recovery dispose of their incomes in local economies which have taken the brunt of the downturn. However, to achieve this, Budget 2021 must utilise the correct channels to get these economies and their resources back in motion. A treacherous few months await the government if they are to ensure that the pandemic doesn’t split society in the same way it has divided the economy.

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