THIS WEEK’S RULING by the European Commission that Ireland must recover €13 billion in back taxes from Apple has once again thrust our controversial relationship with foreign multinational companies under the spotlight.
On Tuesday’s Drivetime on RTE Radio One, Public Expenditure Minister Paschal Donohoe set out what he sees as the stakes in deciding whether or not to appeal against the EC’s decision, claiming:
One in five workers in the private sector work for companies that are located here in Ireland due to foreign direct investment.
20% of all private sector workers. Is that true?
(Remember, if you hear a politician making a big claim in an important debate, email factcheck@thejournal.ie or tweet @TJ_FactCheck).
Claim: One in five private sector workers work for companies brought to Ireland through foreign direct investment
Verdict: FALSE
What was said:
You can listen to Minister Donohoe’s interview in full here, and hear the relevant snippet above.
Here’s the claim we’re interested in:
One in five workers in the private sector work for companies that are located here in Ireland due to Foreign Direct Investment.
On Wednesday’s Today With Seán O’Rourke, Education Minister Richard Bruton (who until recently held the Jobs portfolio) weighed in on this point, repeatedly referring to “350,000 jobs” in the multinational sector.
And on the same show, Labour leader and Donohoe’s predecessor at Public Expenditure, Brendan Howlin said: “We’ve an enormous dependency on inward investment – 360,000 jobs…”
What’s going on here? While there were several similar claims made on this subject in the past 48 hours, we’re taking Donohoe’s statement on Drivetime as the main claim, simply because it was the first one we came across.
The IDA, the state agency responsible for attracting foreign direct investment (FDI), and bringing foreign companies into Ireland, revealed in January that 187,056 people are now employed by foreign companies who are clients of IDA.
They added:
IDA estimates that for every 10 jobs generated by Foreign Direct Investment (FDI), another 7 are generated in the wider economy (translating into 318,000 jobs or one in five private sectors jobs).
The first thing to note here is that the number of people actually employed by IDA client companies is 187,056. That estimated “indirect” employment is mainly among the many Irish-owned companies operating in the economy at large.
But IDA clients are not the only foreign-owned companies in Ireland.
The Department of Jobs, Enterprise and Innovation publishes annual figures for employment among companies helped to set up by all government agencies – IDA, Enterprise Ireland and Ùdarás na Gaeltachta.
According to the most recent data (July-September 2015), there were 196,853 employees at foreign-owned, “agency-assisted” companies.
Unfortunately, the CSO does not have a single, comprehensive statistic on this, so there are a few methods of reaching a rough calculation, all of them flawed. Apart from the final calculations, all the figures come from the CSO and relate to the third quarter of 2015.
Estimate 1
Subtract the number of public sector workers (376,300) from the total number of people in employment (1,983,000) – leaving 1,606,700 private sector workers.
The weakness of this estimate is that the source of the number of public sector workers is the Earnings, Hours and Employment Costs Survey (a survey of employers) but the source of the total number in employment is the Quarterly National Household Survey (a door-to-door survey of workers).
Estimate 2
This is the one presented by the IDA in response to FactCheck. Take the total number in employment (1,983,000) and subtract those employed in three economic sectors: public administration, education and health and social services (501,300).
That would leave 1,481,700. However, as the CSO itself points out, not all workers in those sectors are public sector workers – think, for example, of the private healthcare industry.
So this estimate has its own significant flaw.
Estimate 3
Take the CSO’s estimate for private sector workers (which leaves out self-employed workers and is 1,243,300) and add the number of self-employed workers (323,000). That gives us a rough estimate of 1,566,300 private sector workers.
But again, the first figure comes from the employer survey, and the second comes from the household survey, which makes comparison and aggregation tricky.
However, we need a rough estimate of the total number of private sector workers in Ireland, so we’ll have to make do with these three flawed figures.
Remember that the number of employees in foreign-owned, agency-assisted companies in Ireland in the third quarter of 2015 was 196,853. That’s…
So the best estimate (however rough and flawed) is that between 12.3% and 13.3% of private sector workers are employed by foreign-owned, FDI companies.
Therefore Paschal Donohoe’s claim, as stated on Drivetime, that one in five private sector workers work for “companies that are located here in Ireland due to Foreign Direct Investment” is false.
FactCheck asked Fine Gael and the Department of Public Expenditure for evidence to support Donohoe’s claim.
In response, the department clarified that:
The Minister was referring to all employment, direct and indirect, stemming from companies here as a result of FDI. [Emphasis added]
This is obviously different from what he said on Drivetime on Tuesday. In its response, the department cited the figures presented by the IDA – 187,056 employees at IDA clients, and 318,000 total “indirect roles” in the wider economy.
Let’s look at that.
The IDA told FactCheck its estimation that “for every 10 jobs generated by FDI, another seven are generated in the wider economy” came from an analysis performed by the economic consultants Indecon.
Their research, conducted in 2010, concluded that the “multiplier effect” of FDI in Ireland (essentially the ripple effect of new jobs throughout the economy) was 1.72.
This means that for every 100 jobs added to the economy through FDI, 72 more should ripple out from that, in the form of subcontracters, suppliers and so on, and also through the extra spending done by those 100 employees of foreign-owned companies.
This is where the figure of “one in five” ultimately comes from. If you apply the multiplier (1.72) to those 187,056 jobs in IDA companies, you get 321,736.
That’s 21.7% of 1,481,700, the figure cited by the IDA (Estimate 2, above) for total private sector workers – roughly one in five.
And if we apply the 1.72 employment multiplier to the 196,853 jobs at all foreign-owned, agency-assisted companies, we get 338,587. As a share of all private workers, that’s…
However, it’s very important to be specific and careful in how you describe these numbers.
Even the IDA has stretched the language somewhat. For example, in a statement on Tuesday, its CEO Martin Shanahan claimed:
Over 300,000 people are employed directly or indirectly in FDI companies in Ireland. [Emphasis added].
But as we’ve seen, the multiplier effect involves, for example, jobs created through the increased demand for products and services resulting from new jobs at FDI companies.
Say, for example, an American tech company sets up in a town in Ireland, employing 100 people.
That’s a lot more salaries, and a good bit more spending, around the town.
Let’s say a good chunk of these employees start going to the same supermarket. Queues begin to develop, so the manager hires an extra cashier.
According to the logic of that IDA statement, this cashier – who is actually an employee of the supermarket – is now “employed indirectly” in the tech company.
So it’s important to be specific and careful in how you describe these numbers.
Similarly, when Richard Bruton describes FDI firms as “companies who have 350,000 jobs in Ireland”, he’s demonstrably wrong, not least because the figure of 350,000 is an exaggeration even of the IDA’s multiplier estimation.
But when he says, as he did at the start of the debate: “350,000 jobs, direct and indirect, depend on foreign companies who’ve invested here”, he’s getting closer to the truth.
Here’s how the department told us he got that number:
In July, the IDA said FDI jobs growth in 2016 was “on a par” with that of last year. Since 12,000 jobs were added last year, that would suggest IDA-backed employment might be expected to reach 201,000 by the end of 2016 (only if you round up the current total from 187,056 to 189,000).
If you apply a multiplier of 1.7 to that, you get 341,700, and the minister rounded up to 350,000.
In fact – the net job gain was 11,833. Added to 187,056, that’s 198,889. But if you apply the correct multiplier of 1.72, you get 342,089.
So the best you could fairly say is this:
If trends continue, by the end of this year we expect almost 199,000 people to be employed by IDA-assisted foreign companies, and based on one model, it has been estimated that this will have rippled out into a further 143,200 jobs elsewhere in the economy.
Paschal Donohoe, in an interview on Wednesday’s Morning Ireland, mentioned “the over 360,000 people who either work for a large employer or are dependent on a large employer for their work”.
His department told us that figure was taken from comments made on Tuesday by Finance Minister Michael Noonan.
Similarly, we asked Labour and Brendan Howlin’s office about his reference to 360,000 jobs, and they said it was based on Paschal Donohoe’s claim on Wednesday’s Morning Ireland.
A spokesperson told FactCheck “Deputy Howlin assumed that figure to be correct in subsequent interviews”.
We know those claims to be false, since they involve an exaggeration of the actual estimate, and misleadingly present predicted employment at the end of 2016 as current levels of employment.
Paschal Donohoe’s claim was:
One in five workers in the private sector work for companies that are located here in Ireland due to Foreign Direct Investment.
That’s wrong. In reality, between 12.3% and 13.3% (roughly one in eight) private sector workers are employed by FDI firms (i.e. “companies that are located here in Ireland due to FDI”).
As noted, his department told FactCheck he was actually referring also to “indirect” employment, a term which, as we’ve shown, somewhat generously describes the knock-on benefits of FDI in other companies, mostly indigenous Irish companies.
According to one model, it has been estimated that FDI has stimulated the employment of 141,734 workers elsewhere in the economy, on top of the 196,853 actually employed by FDI companies, as of September 2015.
This total level of employment, 58% of which is in FDI companies themselves, equates to between 21% and 22.9% of private sector workers in Ireland – slightly more than one in five.
Irish politicians should be more careful than they have been in the last 48 hours, when describing the benefits of FDI in Ireland, and should clearly distinguish between actual, counted employment at FDI companies, and employment elsewhere in the economy, which has been estimated based on one model.
We rate Paschal Donohoe’s claim, as stated on Drivetime, FALSE.
Send your FactCheck requests to factcheck@thejournal.ie
To embed this post, copy the code below on your site
have your say