'Most minimum wage workers are in middle-income families'
Published 15/06/2016 | 02:30
Increasing the minimum wage will not tackle poverty because the majority of workers earning it actually live in middle-income households, a new study claims.
The startling findings come as the Government is under pressure to increase the €9.15-an-hour statutory rate.
A new report by the ESRI, which is partly State-funded, warns that increases in the basic statutory pay rate will do little for households living below the breadline.
The report, to be published today, questions the impact increases in the statutory wage have on reducing poverty. It finds that recent hikes in the national minimum wage have mainly benefited people in middle-income households.
The economic think tank found the proportion of low-wage employees rose from 20pc in 2005 to 23pc in 2014. But it added: "Results also confirm that very few low paid individuals are found in households with incomes below the most commonly used poverty line income cut-off."
The report - 'Low Pay, Minimum Wages and Household Incomes: Evidence for Ireland' - says 11 out of 12 low paid workers are living in households above the poverty line.
In most cases, low paid employees are not the sole earners. It finds that even where they are the sole earners, fewer than one-in-five are at risk of poverty.
The report notes that a young adult may be earning a low wage but living in the family home where the parents' income is enough to keep the household above the poverty threshold. In addition, low wage earners with few dependants will be at lower risk of poverty.
In contrast, employees with an above average wage may be more at risk of poverty when they are the sole earners in the household or have many dependants.
But it notes a young adult may be in a poverty trap at home because they could not afford to buy or rent a home, while other workers may feel they are not earning enough to start a family.
"This is not to say that a minimum wage policy is flawed if it fails to reduce poverty," says the report. "Rather, it is important to understand the possibilities and limitations of targeted efforts to increase wages."
It notes that government policy may, of course, be concerned with low individual incomes as well as with low household incomes.
"But it is important to be clear about what minimum wage policy can, and cannot, achieve. It is also important, as recent UK experience illustrates, that the design of tax and welfare policy changes should take such factors into account from the outset," it says.
The Government has committed in the Programme for Government to a hike in the wage to €10.50-an-hour over the next five years in a bid to reduce "poverty levels" for the 124,000 workers on it.
Unions want the Low Pay Commission to recommend it boosts the rate beyond this when it reports next month due to the economic recovery and a hike in the minimum rate in the UK.
The leader of Mandate trade union said it would be "ill conceived" if the Government does not increase the minimum wage.
"It's disappointing that a body that would have had a social agenda in the past would come out with a negative statement in relation to pay, particularly low pay," said John Douglas. "The Low Pay Commission hasn't come up with any proposal as yet to increase the minimum wage but an increase is vital."
He said raising the minimum wage was not a "cure-all" to poverty, but an essential part of tackling poverty.