A living wage will come at a serious economic and social cost
ISME has warned against the potential negative impact of the planned increase to the National Minimum to a ‘Living Wage’. Last week, the Government announced a plan to increase the National Minimum Wage to a “Living Wage”. ISME notes that while the plan announced by Government last week will be ‘politically popular’, the reality is that moving to a living wage will come at a serious economic and social cost in Ireland, most especially for lower-skilled and unskilled workers.
The strength of the economy contributes far more to wage growth than legislating for minimum wages does. Since 2008, the National Minimum Wage has grown 21%, while the Average Industrial Wage has grown 24%. According to ISME, that statistic does not tell the whole story. The real rise in the average industrial wage occurs post 2016, when the general economy started to take off after the Great Recession. Since 2016, the Minimum Wage has risen 15%, but the Average Industrial Wage has risen 22%.
Research shows that periodic upward reviews of the Minimum Wage in line with inflation do not impact hours worked. Last January, the ESRI noted that when the Minimum Wage was increased from €8.65 to €9.55 per hour between 2016 and 2018, worked hours for those on the Minimum Wage dropped by one hour per week (2.5%). Fortunately, this loss of worked hours was compensated by the increase in the Minimum Wage, at a time when employment levels were increasing strongly.
The announcement of the Living Wage made by Government last week is for a substantially higher Minimum Wage, of €13.10 per hour, reached over four years. This represents a 16% increase overall, raised at 4% per year. If the domestic economy continues to expand by at least this amount over the next four years, this will be achievable, but not without cost. The cost of this increase will be met by reduced working hours, or increased worker productivity, or increased sales prices, or a combination of all three. Where employers pass on increased wage costs by increasing the cost of foodstuffs and consumer goods, this reduces the value of the pay increase for ordinary workers.
Neil McDonnell, CEO of ISME said: “The most significant cost for individual workers today is that for accommodation. Adjusting the Minimum Wage upwards will have no impact on the affordability of housing and rental accommodation for workers as rents spiral upwards, chasing an ever-diminishing supply of accommodation. Ireland must face the fact that the 96% reduction in the supply of rental accommodation since 2012 is due to tax and regulatory changes which have made the provision of rental accommodation prohibitively unattractive. The solution to the accommodation crisis cannot be “outsourced” to employers since the problem is not wages. It is the non-availability of affordable accommodation. Supply is the only solution. Therefore, hundreds of employers are already providing accommodation to thousands of their employees- because they cannot afford to pay them wages sufficiently large to cover current national rent levels.”
Finbarr Filan, a convenience store owner from Sligo on the ISME National Council, said: “The National Minimum Wage is used as a benchmark for all the employees in the retail and hospitality sector. An increase of 16% in the base Minimum Wage would impact the wages of all our staff and would increase grocery prices to the customer by 4% if passed on in full. In reality, we would have to look at ways to avoid passing on the full impact to customers, so we would have to make savings elsewhere.”
Issued on behalf of ISME by Heneghan
Neil McDonnell is available for comment
Neil McDonnell/ISME – (087) 299 5658