Householders on average wage would be just as well off on dole
Published 27/11/2010 | 05:00
A typical family on the average industrial wage would be just as well off on the dole, according to a new report.
The problem must be addressed, an official pre-Budget report to the Government says.
The recommendations from the industrial policy agency Forfas included cuts in the minimum wage and social welfare to help restore competitiveness and improve the incentives of a job over welfare.
Trade unions are likely to be even more strongly opposed to its proposal to abolish the legally binding wage agreements which are set for several sectors, or tie them into changes in the legal minimum wage.
The four-year plan published this week said these Employment Regulation Orders (EROs) and Regulated Employment Agreements (REOs) would be reviewed during the lifetime of the plan.
"Because the wage rates contained in EROs are legally enforceable, their continuation in their current form would negate the impact of any change in the national minimum wage," the report said.
"The four-year plan followed our recommendations relatively closely," Forfas chief executive Martin Shanahan said. "The important thing is the interaction between the minimum wage, the difference in income between working and not working (known as the replacement ratio) and the EROs."
On wages in general, the report notes that Ireland had the fifth-highest wages among 28 countries in the OECD, at 40pc above the average.
Net wages in Ireland are higher than those in France, Germany or Sweden and 60pc above the average of the 13 big euro members. But Ireland has lower employer taxes, leaving labour costs the 10th highest.
"Analysis by the Central Bank found that salary levels in internationally traded businesses are broadly in line with the euro average. In more sheltered sectors, they are likely to be higher than those in our main trading partners," the report says.
Cuts in wages seem to have been relatively modest, with firms preferring to lay workers off rather than reduce pay.
"Research suggests that firms do not favour wage reductions and remain reluctant to hire over-qualified people, or new staff, at lower pay rates than existing staff," it adds.
"Given the dramatic increase in unemployment, the relative stickiness of wage levels suggests that barriers exist which are preventing a more substantial adjustment."
Incentive problems are not confined to the lower paid. It says a one-earner family with two children, on average industrial earnings of €33,633, who receive the maximum rent allowance in Dublin, would retain 99pc of their income if the earner was unemployed.
It says up to 20pc of those on the live register face replacement ratios of 70pc, where their incomes would rise by less than a third if they found a job.
The report also recommended the kind of new conditions on social welfare that are being considered by the Government.
"There is a need to reform the system so that benefits decline in line with the length of time a person is out of work," it says.