Stock Evaluation Report of Manchester United PLC

This essay was written as part of final year studies in University College Cork. 

Class: EC 3119 Capital Markets and Asset Valuation 

Grade: 1st Class Honours 

Introduction of Company 

Manchester United plc, together with its subsidiaries are the owners of Manchester United Football Club which is located in the United Kingdom. In 2017 the franchise was and still is one of the world’s most recognisable sporting entities, making it one of the world’s highest earning sports teams. In fact, the franchise ranked as the 3rd highest valued sporting franchise behind the Dallas Cowboys and the New York Yankees in the world across all sports. (Forbes 2017) This makes the club which was founded in 1878 under the name Newton Heath the most valuable sports franchise outside of the United States of America as well as the most commercially successful football club in the world. The club is owned by an American family known as the Glazers. The takeover of the franchise was a gradual one, but by the end of May 2005, the family owned 98% of shares. Since the acquisition, the clubs revenue has skyrocketed. Much of this is due to TV and sponsorship revenue. This sponsorship includes £361 million over seven years from Chevrolet, £120 million from Aon over eight years and £750 million from Adidas over ten years. However, the family has come under criticism from fans and the media alike for burdening the once debt free club with such amounts to pay back. A debt that would reach its peak at £777.9 million. (BBC 2015) The main franchises liabilities come from wages of the playing staff. This includes Alexis Sanchez who earns £350,000 a week while Paul Pogba earns £290,000 a week making them the two highest earning footballers in England. (Daily Mail). In this piece, I will estimate the fair value of the company using different financial models. Describe the economic/financial data of the franchise and finally ask the question of whether the franchise is worth investing in or not.  

Focus on Stock Description

The following data was collected from Yahoo Finance on March 15th, 2018. Manchester United plc (MANU) was first floated on the NASDAQ New York stock exchange on the 10th of August 2012 and has remained a constant figure to this day. On that day stocks opened to the floor at $14.05. As of March 15th, 2018 stocks are available at $20.00. This increase can only be expected with the increasing about of money coming into the game of football as mentioned above. Over a 52 week period, the stock has seen a 20% change in value, seeing the stock reach a yearly low of £15.86 and a high of £22.15. These fluctuations are understandable. Manchester United PLC appears in both British and international newspapers on a daily basis for both positive and negative reasons. Public opinion on how a sporting franchise is doing can change more often than other industries, and this will naturally affect the stock price. Despite this, the 200 days moving average of the stock is $19.19, while the 50-day moving average stands at $19.54. This along with the fact that the stock was valued at $20.00 on March 15th, 2018 would suggest that the stock is a bullish stock rather than a bearish. The stock at a bare minimum is keeping in line with its 50-day average. Finally, according to the Manchester United 2017 financial report, the weighted average number of shares is 164.025 million with the basic earnings per share (EPS) standing at £23.88 or $33.76. 

Wider Financial Description 

The following information comes from the 2017 Manchester United financial report. The information will be given in British Sterling. (Fig 1-3). Ending in the year of June 30th, 2017, the revenue of the franchise stood at £581.204 million. This can be broken down into commercial activity which includes the selling of merchandise (£275.471 million), broadcasting from companies including Sky and BT (£194.098 million) and match day revenue from ticket sales at (£111.635 million). With the total operating cost standing at £511.315 million which gave the franchise profits of £39.177 million in the year ending June 30th, 2017. The total assets of the club have a value of over £1.5 billion while the liabilities stand at over £1.056 billion. This means the total equity at the club is £477.617 million which is a decrease from 2015 and 2014.  As this report already mentions, when the franchise was taken over by the Glazer family, the franchise accumulated in a lot of debt. This has resulted in significant amortisation fees. In 2017 the club paid out £124.43 million in such fees. While the club is capable of paying such fees/loans with a revenue stream of £581.204 million, such loans are and will continue to be a constant reason of worry for everyone involved as well as potential investors in the future with this number tending to rise with each year. In June 2017 the Interest Before Earnings, Tax, Depreciation and Amortization stood at £199.898 million, increasing substantially from previous years.

Estimating the fair value of the share price and explaining why the model is used. 

Model 1

As already mentioned the market value of the Manchester United PLC stock is between $19 and $20. If I decide to use the 200 days moving average, it stands at $19.19. While this is seen as the market value, it is not necessary the fair value of the stock. The first model I would like to use is to calculate the average return of the stock. This will be done by calculating the average return of the stock over a 12 month period. The purpose of this calculation is to measure the stability of a stock. The less that a stock return varies, the more stable the stock is. This is calculated as follows;

Fig 1: 

P1 = Previous Month

P2 = This/Most Recent Month

D12 = Dividend paid at each period. 

See working outs from figure 4-6. 

Model 1 Analysis 

On average over a 12 month period, the average percentage return on Manchester United PLC stock is + 1.27%. This period sees highs of 16.1% (November 1st, 2017) which a low of -4.62% (December 1st, 2017) This is a considerable variation in return making the stock very unstable. The public opinion of a football club can change very quickly, and this can affect the stock price. The clubs strong stock price increase in November 2017 was a result of a positive number of results for the first team in October 2017. This included five wins from six including two wins in the Champions League which is played on a European scale. (Manchester United Fixture List) While on the other hand in November the first team lost two of their five games including against rivals Chelsea. To further back this theory, the share price value increased 9% on September 1st, 2017. In August the 1st team won their opening 3 Premier League games convincingly with the total £147.96 million pound investment in Romelu Lukaku, Nemanja Matic and Victor Lindelof looking like positive business. (Transfermarkt).There is a very clear correlation between results for the first team and the value of the Manchester United PLC stock price (MANU). I believe this evidence makes this franchise a very risky investment as one mistake on the pitch or referee decision can alter how a month is interpreted. A club of this size is expected to win the Premier League, but with United trailing Manchester City by 16 points this hope is a long way. This gap could potentially limit how positively the franchise could be seen for the next few months or even years and therefore affect the stock price negatively. The club says as much themselves in their 2017 annual report stating ”our dependence on the performance and popularity of our first team” is a “factor of influence” (Manchester United Annual Financial Report) 

Model 2:

See calculations in Fig 5

If we compare the total revenue for Manchester United PLC in 2013 (£363.189 million) and 2017 (£581,204,000) we can see that the revenue has increased by just over 60% in four years. With the exception of 2015, the club recorded increasing revenue from one year to the next. In 2014, 2016 and 2017 revenue change changed within a 1.5% range. Between 2014 and 2017 the average increase in revenue was 4.75% with 2015 dragging this figure down from 6.4% based on the other 3 years. 2013 brought with it, both the highest level of % profit as well as the lowest total revenue. 

Model 2 Analysis

Despite revenue increasing overall the revenue took a sharp dip between June 1^st2013 and 2014. May 2013 saw the retirement of long-standing manager Sir Alex Ferguson. While under his 26-year stewardship the first team never finished below 3^rdin the Premier League. But come May 2014 the club had finished 7th, its lowest position in over 20 years. While revenue increased, employee benefit expenses also increased as the club tried to return to glory with big money signings and higher wage packages. This increase in costs reduced overall profitability despite increasing revenue. The safe running of this business financially is very dependent on the first team performances. It is no coincidence that the club recorded a loss after the season in which they did not take part in any European competition and therefore did not receive this source of revenue from UEFA. (UEFA Revenue Distribution)

Investment Strategy

As already mentioned Manchester United PLC revenue exceeds its cost. The stock price does jump up and down but overall from one financial year to another it is increasing. It is in a position to pay a dividend. It is a business with a global appeal, higher than most including firms from both the world of sport and not. The club has many valuable assets such as their 76,000 seater stadium Old Trafford as well as a very talented playing staff with potentially high selling value. Due to the fact they are part of the Premier League and have signed many long-term sponsorships deals a certain level of revenue is guaranteed. On the other hand, potential investors of the club would need to accept constant public scrutiny as well as pressure to invest. The world of football is in a period where wages and transfer wages are rising exponentially. With the four most expensive transfers in football history happening in the last two years. (Independent 2018). While these are risks at any football club, Manchester United have more debt than any football club in Europe at £464 million. (Independent and UEFA). With only 0.47% of shares floated, even if one investor bought all the shares, they would have no say at the club. (Market Watch).  Any takeover bid would likely be strongly resisted with revenue increasing each year. Realistically if someone wanted to take over the club, they would need to pay somewhere north of the market value of $3.14 billion reported by market watch due to intangible benefits such as publicity. Mike Ashley and his company Sports Direct with their ownership of Newcastle United is an excellent example of using a football club to improve the brand of another business. Any investor in Manchester United PLC would also need to take on all the debt of the club and have the constant pressure from millions of people to invest in the playing staff. It would be near impossible to make a profit. As a financial investment advisor, I would recommend both small and large investors not to invest in the stock of Manchester United PLC (MANU). 

Reference List: 

BBC 2015: http://www.bbc.com/sport/football/32615111

Daily Mail: http://www.dailymail.co.uk/sport/football/article-5301837/Alexis-Sanchez-goes-Premier-League-wage-table.html

Forbes 2017: https://www.forbes.com/sites/kurtbadenhausen/2017/07/12/full-list-the-worlds-50-most-valuable-sports-teams-2017/#2fa73c814a05

Independent and UEFA https://www.independent.co.uk/news/manchester-united-debt-uefa-report-european-club-football-landscape-qpr-glazer-family-a7523761.html

Independent 2014 https://www.independent.ie/sport/soccer/10-most-expensive-footballers-in-history-36464026.html

Manchester United Annual Financial Report: http://ir.manutd.com/financial-information/annual-reports/2017.aspx

Manchester United Results: http://www.manutd.com/en/Fixtures-And-Results/United-Fixtures-And-Results.aspx?pageNo=1

Market Watch https://www.marketwatch.com/investing/stock/manu

Transfermarkt:https://www.transfermarkt.co.uk/manchester-united/alletransfers/verein/985

UEFA Revenue Distribution:https://www.uefa.com/uefachampionsleague/news/newsid=2398575.html#/

Yahoo Finance Historical Data: https://finance.yahoo.com/quote/MANU/history?period1=1344553200&period2=1521417600&interval=1d&filter=history&frequency=1d

Biography 

BBC 2014 Why buy a Football Club: http://www.bbc.com/news/business-26365955

Blackwell Publishing: http://www.blackwellpublishing.com/content/GrantContemporaryStrategyAnalysis/6th_Edition/case_teaching_notes/CSA6CaseNotes_06.pdf

Figures and Graphs 

Fig 1

Fig 2

Fig 3 

Fig 4 

Fig 5 

Outlining a Model of Business Objectives That Best Describes Twitter

This essay was written as part of final year studies in University College Cork. 

Class: EC 3100 Coperate Strategy 

Grade: 1st Class Honours 

Outline a model of business objectives that best describes this company’s most recent strategy. Discuss the success of this strategy for this company, justifying the position you take with supporting evidence. 

There are many quotes about strategy out there. For example, American academic Michael Porter once said, “The essence of strategy is choosing what not to do.” Corporate strategy is vital for any business big or small to survive. Without a plan, businesses would not achieve very much, even with the best of intentions. “If all you do is motivate, without a strategy, it’s like a warm bath. It’s nice. It’s not enough.” (Robbins 2017). In this essay, different models of co-operating strategy will be outlined for context. The selected model will then be assigned to the selected company. This will be done to help establish and identify the direction and objectives of the introduced company. Using the model, the strategy of the company will be described in detail. Finally using researched evidence, it will be investigated whether these approaches are having/have had their desired effect, or in other words are they successful. 

When it comes to choosing the correct strategic model to assign to a company, there are three main choices. The first of these would be the Baumol model. The primary aim of this model is maximising the sales revenue of the company. Such companies tend to spend a lot of money on advertising to reach a broad audience of people. This advertising often leads to more sales. This is advantageous because a company can capture more market share and achieve growth. The second choice is the Williamson model. The central idea of this model is maximising utility often with the consequence of reducing profits.  Finally, the Marris model can be seen as a growth maximisation. The model does this by diversifying its interest and achieving high levels of utility due to growth in assets. 

The company under question for this assignment is American social media, news and micro blogging company Twitter. The company which is located in over 35 offices worldwide focuses and making its service an “open platform” and easy to use. (About Twitter 2017. ) The public company which is located in San Francisco was founded in 2006 is a self-publishing platform. At first, users were restricted to sending out tweets of up to 140 characters. Since then Twitter has integrated and diversified their service. For example, the introduction of video sharing site Periscope. (Reuters 2017).  In recent years Twitter has tried to change its image from not just a social media website, but also a place for people to receive “breaking news and entertainment to sports and politics” (Twitter 2017). For example if you go to the Apple App store or Google play store you will not find the Twitter app under the “Social Media” section but rather the “News Section” For this reason and more, it is the Morris model that will be used to describe the company’s most recent strategies and the discussions that will follow. 

The Morris model indicated that firms who follow it are utility maximizers and they do that by increasing profits. Because of this, it must be assumed that Twitter is reaching out to new markets and diversifying to increase profits. Before diving into why Twitter is finding new ways to improve revenue it is crucial to identify the factor that has pushed Twitter to do so. In 2016 Twitter did their research. This research brought up three significant discoveries when asking people who do not use twitter. Firstly people “didn’t know or simply misunderstood what Twitter was for.” (Twitter Blog What’s Happening 2016). Secondly “many thought of Twitter primarily as a social network, a place to find and connect with friends and family members.” People thought they were “supposed to Tweet every day” (Twitter Blog What’s Happening 2016). The fourth major issue facing Twitter is “Facebook and Snapchat are seeing strong user growth, and Twitter has not been able to keep pace with these companies” (Forbes 2016) Finally the fifth major issue facing Twitter is that they have “stubbornly stuck with its 140-character limit thus far” (Fool 2016)

Now with the issues identified. It is time to discuss how Twitter is combating these issues. First of all, the issue that Twitter simply can’t keep up with other social media platforms regarding increasing user growth. In fact, the recent numbers are very damming. Between the last quarter of 2014 and the last quarter of 2016, Twitter’s absolute monthly increase in active users is less to be desired. While Facebook and WhatsApp have gained 450 million plus new accounts in that period, Twitter has only gained 31 million If we compare Twitter’s numbers with Facebook. For every 15 new users Facebook is gaining, Twitter is only gaining one. (Business Insider UK 2017) Figure 1

So, have Twitter followed the Marris model to combat this issue? The Marris model suggests that firms will diversify as existing products can’t achieve a steady growth forever. But such an approach will only be followed if improving the original product. At first improving their product and usability is exactly what twitter tried to do. For example, the introduction of the “Instant Timeline.” The instant Timeline feature would give “new users great content pulled from the social network without going through the traditional setup process.” (New York Times 2015) The hope is doing this to make the process of “setting up an account is quick and nearly painless, and you are then plunged into Twitter’s information stream.” This can only be seen to have two objectives. First of all, to make the sign-up process easier and secondly to keep existing members using the service. This can also be seen with the introduction of the “Recap” feature. Kevin Weil, Twitter’s vice president of product, said that “the idea is to help you find the best of what you missed, whether it has been a day or just an hour since you last checked the service.” (New York Times (2) 2015) The recap feature still allows your feed to work in a chronological fashion, but now the first 10-15 tweets a user will see on their feed will be the 10-15 that received the most interactions from the tweets that would appear on the user's normal chronological feed.  In other words, Twitter has been doing a lot to make their service easier to use. To help its users find the information they are looking for as quickly and as seamlessly as possible. 

The next issue facing Twitter was the fact people “do not know or simply misunderstood what twitter is for” as well as people seeing Twitter as just another social media website to speak with friends and family rather than the news site it aims to be. To combat these two issues, Twitter has started a new campaign on Twitter itself to reemphasize what twitter is all about. This was done in a video format. The video aims to answer why people should use twitter and how hashtags can help everybody have their say on a story. The video gives examples of the questions users should be asking themselves when using the site such as “What’s everybody talking about?” and “What’s trending?” Twitter is the place to see “what’s happening in the world right now.” (Twitter Official 2016) The same video gives examples of hashtags that have been very popular in recent times. For example, #GameOfThrones #Hamilton #PokemonGo and #BlackLivesMatter. The marketing campaign is very direst and does not refer to following your friends and family. Twitter has succeeded in creating a marketing campaign that is clear and to the point but the decision to spearhead that campaign on Twitter itself is questionable considering the group of people the campaign targeted were people who do not have a twitter account. 

Regarding the issue “Am I supposed to tweet every day?” or “how often should I tweet?” Twitter has done very little to answer this question directly. Saying this Twitter has published many articles on how to use the website and how to get the most out of the service, whether you be an individual or business. For example, “how to connect with your customers on Twitter” (Twitter Basics 2016)

Lastly, Twitter’s campaign to increase the characters of a tweet to 280 is in the early stages. At the time of writing the new 280 character limit is “available to a small group of Twitter users.” "We want every person around the world to easily express themselves on Twitter," the company said, "so we're doing something new: We're going to try out a longer limit, 280 characters." The key word there is “try” The 280 character tweet is a test, and all users will have to remain and see if it is here to stay. 

Now that strategy model of Twitter has been identified. As well as this the problems facing Twitter and Twitter is combating these issues. The questions remain, has the strategy been successful? 

With millions of people using Twitter and millions more joining each year it would be easy to think Twitter is thriving. But when the numbers are examined more closely the results are a little more grey. To start with the negatives the Twitter share at the end of closing stood (October 20th, 2017) at US$ 17.87. (Nasdaq Index). While this number is higher than many days over the last few weeks, over the last few months, the Twitter share price has consistently fallen from highs of US$ 73.31 on the 26th of December in 2013. Even since the 17th of August 2017, the stock price has dropped from US$ 20.17. Although this is an improvement from an all-time low of $13.92 in May 2016. On top of this “the company’s total revenue declined by 8% year-over-year (y-o-y) to $548 million on the back of a decline in U.S. advertising revenue.” (Trefis Team Forbes 2017)

During the first quarter of 2017, the number of active Twitter users rose to a high of 328 million. A 26 million increase in two years previous. (The Fool Daniel Sparks 2017)/Figure 2

In summary, Twitter fits into the model of the Marris Model. Due to a reducing share price the company has diversified its product. This has not been a total success as the Twitter still lags behind social media websites such as Facebook, and the share price is again falling. But Twitter has increased its number of active users and will hope to continue to do so. While the number is hard to quantify, Twitter does play a massive role in sharing news on topics such as sports, music, and politics. Donald Trump and his tweets are a great example of this as they are always discussed in the news. While many news outlets use Twitter to break to spread breakings new. All in all, twitter is a place if not the number one place to go for news. That in itself is a great success.

Studies of ‘Kenneth Arrow’s 1963 paper entitled “Uncertainty and the Welfare Economics of Medical Care”

This essay was written as part of final year studies in University College Cork. 

Class: EC 3135 Health Economics The Role of Public Policy 

Grade: 1st Class Honours 

‘Kenneth Arrow’s 1963 paper entitled “Uncertainty and the Welfare Economics of Medical Care” identifies the unique characteristics of the health care market and health care commodities. He states that “the list is not exhaustive, and it is not claimed that the characteristics listed are individually unique to this market. But, taken together, they do establish a special place for medical care in economic analysis”. Discuss this statement making use of applied examples and references where appropriate’.

The American entrepreneur and motivational speaker Jim Rohn once said “Take care of your body it is the only place you have to live” No matter what way one looks at health and health care their importance is infinite. This quote shows the importance of studying healthcare from every perspective. Economically included. When Kenneth Arrow wrote his paper “Welfare Economics of Medical Care” he was correct that the healthcare system as a market brings with it many unique features or characteristics that are not seen in other markets. In this text, what makes the health care so unique as a market will be discussed. This will be followed be suitable references from Ireland and abroad. 

The first characteristic that is unique to medical care in economic analysis is embodied by the concept of the behaviour of the doctor who in this context can be seen as the seller of a service and the patient who can be seen as the buyer or receiver of the product or service. The fact that “the customer cannot test the product before consuming it, and there is an element of trust in the relation.” (Arrow 1963) This is a contrast from most other products. For example, when one goes to a car dealership to buy a car, one will get to test drive the car before they must commit to buying it. This gives the consumer an opportunity to see if the product will fulfil the role required of it. A patient does not receive this luxury. They must try the recommend treatment and hope that it will work. Still dealing with the point of view of the patient, that patient “expects that the same physician will normally treat him on successive occasions.” (Arrow 1963). Again, this cannot be said for other goods. For example, if somebody does their food shopping, there is no expectation that the customer will always be attended by the same employee. 

Now, switching the focus to the point of view of the doctor. Doctors like many professionals provide a service, but they do not sell a service even if they do make money. “Advertising and overt price competition are virtually eliminated among physicians.” (Arrow 1963) This is because doctors, unlike business sellers, are expected to act in the best interest of patients or to quote Arrow “be governed by a concern for the customer's welfare.” While often the job of a salesperson is to maximise revenue. One way in which doctor’s work in the best interest of patients is to subscribe the use of generic drugs. This is done to reduce the amount of money both the government and patients have to pay for medication. In Ireland, over €1 billion is spent on branded drugs. Because of this, it was estimated that the government could “cut millions from that figure.” By using generic rather than branded drugs. (Irish Times 2005) Again this is a contrast from a sales rep who would often be instructed to upsell to customers. 

The second characteristic that makes the medical care market so unique is demand. Healthcare unless most products, is a product with an inverted demand. This means consumers of the product or service do not want the product itself which is healthcare but rather the effect of the product which is good or better health. People would rather just have the health.  This is a difference from most products. For example, the purchasing of clothing. Yes, people enjoy the reward of purchasing clothes, but they also want to have the clothes. As already mentioned the same cannot be said for healthcare. Another product with an inverted demand just like the health market is insurance. People don’t want the insurance itself they want the security that comes with it. While the need for insurance and healthcare may be similar up to this point, they do still have their differences. People's demand for healthcare is “irregular and unpredictable” (Arrow 1963) as it is often unknown when somebody will need it. In comparison, the demand for insurance is more fixed. People tend to buy for example car and house insurance at the same time, every year, often because it is illegal not too. “Having car insurance is a legal requirement” (Rac 2017)   

Delving further into the characteristic of demand, the demand for healthcare is often vital because of a “major potential for loss or reduction of earning ability” as well as “risk of impairment of full functioning.” (Arrow 1963)  If somebody avoids healthcare, it will have serious consequences, unlike other products like movie tickets or a new car. 

Having spoken about demand, it is now the only natural to speak about the supply of healthcare. The amount of healthcare that can be provided has many restrictions. Licensing “increases the cost of medical care.” This is because doctors need to be of a certain standard to provide such a complicated service. These standards lead to “high cost of medical education” (Arrow 1963) Not just on patients but students as well. When prices are high, this can reduce demand as people cannot afford the service. For example, to attend Harvard Medical School, the fee is $58,050 per year for one student. (USA News 2017) On top of the large fees, students also need to achieve higher results than most when leaving school. In Ireland, the CAO points required to do degrees such as medicine, nursing and dentistry are all over 400 points. (CAO 2015) This need for licensing stops “all others from engaging in any one of the activities known as medical practice.” While for many other professions qualify can help. Without a degree, there is no legal barrier stopping somebody from becoming, for example, a receptionist, marketer or musician. 

The final characteristic that will be discussed is that of price practices. Variation in price does occur in the medical market but often in different ways to most markets. In this market “Price competition is frowned on” (Arrow 1963).  It is very seldom if ever one would see doctors compete with one other for price. There is no race to the bottom, like what is seen in other markets. The other pricing practice that is different with this market is “price discrimination by income” For example in Ireland this can be seen by the use of medical cards, which people receive for differing reasons. For example, when somebody is 70 years of age or older.  Doctors often charge less also, if they are aware that money may be short in a family. For example, a member of the family lost their job, or the family is paying high hospital fees elsewhere. 

In summary, the healthcare market has many characteristics that together make it a unique market. These characteristics stretch from demand, supply, entry, pricing and more. These characteristics effect both doctors and patients. The effect of these traits can also be felt in other markets or sectors such as education and insurance. It can be argued that the key to a thriving healthcare market is down to getting the correct balance between the characteristics Arrow mentions in his paper.

 Reference List 

Irish Times 2015 https://www.irishtimes.com/news/use-of-generic-drugs-could-save-state-millions-1.1179819        25/10/2017  

Rac 2017 https://www.rac.co.uk/insurance/car-insurance/why-do-you-need-car-insurance    26/10/2017

USA News 2017 https://www.usnews.com/best-graduate-schools/top-medical-schools/harvard-university-04047?int=grad:wid:top3&int=eab89422/10/2017

CAO 2015 http://www2.cao.ie/points/lvl8_15.pdf

Policy Recommendations to assist in achieving the goal of getting people back to work in Ireland

This essay was written as part of final year studies in University College Cork. 

Class: EC 3127 Economies and the Labour Market

Grade: 1st Class Honours 

In September 2015, the OECD published an overview of its report on Ireland titled OECD Economic Surveys: Ireland overview It suggests “getting more people back to work is the best way to spread the gains from the recovery….. Some important policy levers for achieving this are: well-designed tax and welfare system; efficient activation policy;…..”  (OECD 2015: 29) 

·     You have been hired by the Irish government as an Independent Economic Consultantpolicy levers have been used to assist in achieving the goal of getting people back to work.

Introduction

As Steve Jobs once said: "Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work." Beyond the need to work to receive an income and survive, for many work defines who we are and our ability to be happy. This ability and getting more people back to work is vital. In Ireland like most countries, the government plays a huge role in creating an environment in which people can find employment. In this assignment, I will be focusing on the September 2015 OECD Economic Report as well as other sources in determining if the tax and welfare system policy levers have been successful in achieving their goal of "getting people back to work". I will examine the tax and welfare system policy levers recommendations in the OCED September 2015 report in detail and then use the 2016 and 2017 budget speeches as a reference point to see if the government has taken the recommendations on board. Only these budgets speeches will be examined. The 2017 - 2018 Global Competitiveness Report from the World Economic Forum will be used as well to see if Ireland has progressed on an international scale. All of this information will try and answer the question "are government policies getting Irish people back to work?” I am going to focus on innovation, upskilling of people changing the PRSI tax rates and make work pay.

Innovation

"Large companies account for only a small number of the total number of businesses in Ireland but employ almost a third of the population, a new study finds." (Irish Times 2017) Despite this, according to the OCED September 2015 report "in comparison with other countries, Ireland has fewer young patenting firms, less public spending on R&D, and less industry-financed public R&D" This is a huge issue as it means the country is reliant on MNCs to provide employment and innovation. It is common knowledge that businesses need to innovate to grow into new markets or to even to survive in the long run. The country needs to improve its internal innovation as this will help Irish companies grow and create long-term employment. It would also help in combating high levels of emigration in the country of recent college graduates.  In his 2016 Budget Speech, Michael Noonan introduced a corporation tax of 6.25%. "This relief applies to income from qualifying patents, computer programmes and, for smaller companies, certain other certified intellectual property" (Revenue 2017). While this will help, it is clear that the government will need to do more. According to the 2017-2018 Global Competitiveness report, out of 137 countries, Ireland is ranked 88th in capacity to innovate, 94th in University-industry collaboration in R&D, and 84th in PTC patents. Another major problem for small companies is travel costs. For example, a return train ticket from Cork to Dublin costs more than €80 return, crippling many small firms. I would recommend that the government should introduce free rail travel to Irish entrepreneurs for small businesses/startup within three years of their founding date. I similar idea is currently banded around in the United Kingdom by Social Chain CEO Steven Bartlett with his "Start-Up Railway Card" petition. Without burdens of travel cost, small companies could hire more people, innovate faster, invest more in R&D and grow at a much faster rate. 

Changing of PRSI Tax Rates and Make Work Pay 

The 2016 Budget told us that the "PRSI system, as currently structured resulted in a situation where an employee could receive a pay increase but find themselves with less money." This is a clear disincentive to people to look for promotions, more work hours, or to even work at all. While work can improve people's self-esteem, nobody will work more if it puts them in the worst position financially. In response in the government introduced a "tapered PRSI credit with a maximum level of €12 per week" (2016 Budget) This prevents many people on lower wages entering a higher tax bracket, therefore protecting their salaries. This adjustment is a positive change. Similar changes, budget allowing would be seen in good light for getting low earning people back to work, and equally important keep others working. 

Upskilling

The OECD Survey of Adult Skills (PIAAC) shows is that despite more people attending University in Ireland than ever before, the 45-54 and 55-65 age brackets have relatively low levels of educational attainment. (OCED 2015). These groups need to be targeted for two apparent reasons. First, all these groups suffer from long-term unemployment. In fact, in q4 2014, Ireland was the 5th worst for this issue in the OCED. (figure 11) The report also shows that Ireland has one of the highest replacement rates in the OCED. (Fig 9) Finally, the report indicates that marginal effects for low-income families are the second highest in the OCED after the UK. This means is that low-income Irish families could easily have both the hypothetical and the literal rug ripped from under their feet should there be a tax or welfare change in the country. In other words, the country has very high replacement rates. This gives people who can only demand a low wage little to no incentive to work. While tax changes are the most straightforward way of fixing this issue I believe upskilling lower wage earners in vital to help them demand better-paying jobs and the ability to save for their futures. It was recently reported that "about 28% of people of working age in Ireland have problems with basic tasks involving reading and interpreting information - that equates to 800,000 people." (Examinier 2017) While on the other hand it was reported in September 2017 that "Irish workers are the most overqualified in the European Union for the jobs they are working, according to the latest research." (Irish Times 2017) This has resulted in high emigration levels as already mentioned. I would recommend that the government puts less money into 3rd level education as the country is only paying students to take their skills elsewhere and instead put that money into programs upskilling the countries least skilled and employable people. This will reduce the burden on the state regarding helping unskilled labourers, as well as help, reduce the need for education should the government and market continue to fail to provide enough opportunities for graduates. 

In summary, the government has done a good job of getting people back to work. Since September 2015, the unemployment rate has continued to fall. It is even more impressive when we realise that since 2012 the unemployment rate has fallen from roughly 16% to 6% today. (Trading Economics) On the other hand, the country is still losing thousands of talented recent graduates every year to emigration. Losing between 17,000 and 24,000 each year for the last seven years. This further strengthens the claim that the government needs to put more resources into helping less skilled labourers improve their skills and helping them and recent graduates alike find employment in Ireland. The government also needs to continue its efforts towards reducing replacement rates and encourage employment.

References: 

World Economic Forum, Global Competitiveness Report 2017-2018 http://www3.weforum.org/docs/GCR2017-2018/05FullReport/TheGlobalCompetitivenessReport2017–2018.pdf

2016 Budget http://budget.gov.ie/Budgets/2016/FinancialStatement.aspx

2017 Budget 

Irish Times 2017 https://www.irishtimes.com/business/economy/smes-generating-almost-half-of-all-revenues-in-ireland-1.3295582

Revenue 2017 https://www.revenue.ie/en/companies-and-charities/reliefs-and-exemptions/knowledge-development-box-kdb/index.aspx

Start Up Railway Card http://www.startuprailcard.com

Examinier 2017 https://www.irishexaminer.com/ireland/800000-people-have-literacy-and-numeracy-problems-458640.html

Irish Times 2017 https://www.irishtimes.com/news/education/irish-workers-are-most-overqualified-in-europe-1.3229608

Trading Economics https://tradingeconomics.com/ireland/unemployment-rate

Graphs: