Friday 28 October 2016

The Living Wage is a fine idea provided you have a job

Published 30/04/2015 | 02:30

A foreign economist studying Ireland many years ago observed that any country which regarded the average industrial wage as inadequate had a bit of a problem. A slight exaggeration of our attitudes, perhaps, but he had arrived during one of our periodic bursts of wage agitation, and who is to say that there may not be another.

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That old bugbear, keeping wages consistent with long-term stability, is still with us. Today's average industrial wage is around €35,000 a year. Average earnings are higher, at around €40,000. Some people prefer the "median" figure, where half the workforce earns less and half earns more. That is put at €32,500 a year.

The unions make much of the fact that, after 18 years, a civil servant in the bottom grade earns the average industrial wage. This is portrayed as an example of low pay. Hmm. They make less of the fact that a principal officer is in the top 10pc of earners - a category they tend to describe in different contexts as "the rich".

That brings in the question of inequality - which, it should be pointed out, is different from the actual level of earnings but deals instead with the spread between top and bottom. The two issues have now become intertwined to a greater degree than in the past, which is beginning to create some strange developments.

The most remarkable is probably the arrival centre-stage of the "Living Wage". It is only a year since a body calling itself the Living Wage Technical Group worked out a figure for an Irish living wage, but already the concept is fodder for the general election campaign.

The Tanaiste specifically mentioned it in the context of her official Low Pay Commission. Her mandate asks it to "prioritise work and fairness". The figures bear out her assertion that having a job is the best protection against poverty. The latest ones, from the ESRI, bear it out again. They show that the biggest recession drop in income was among the bottom 10pc, because most of those who lost their jobs fell into that category, "promoting" others to the second lowest decile.

That is the effect of work, or its absence, but fairness? It is a much more contentious claim that "fair wages and conditions are essential" to creating the employment which will increase incomes. Fairness and employment do not necessarily go together. They are not polar opposites either, as is often suggested by employers in this era of zero hours contracts. A lot of research tends to show that too much inequality can be damaging for growth and employment.

It does not show that changing one automatically improves the other. If higher wages led directly to more jobs, what a happy world this would be. The general level of wages, total labour costs, labour costs elsewhere, productivity and tax and welfare systems, are all components in the mighty equations with which the econometrists struggle. Expect no such complexities in wage agreements. The old social partnership agreements always contained some gestures to the lower-paid, but they were not led by them.

When it comes to pay, perhaps the key figure is that, for those at work, serious poverty doubled from 4pc to 8pc during the crash. The remaining 92pc of workers are the proof of that first quote from Ms Burton. A pay round driven by the needs of the bottom 10pc would not only be a new phenomenon, it would require careful consideration of the vexed question of the impact of pay on jobs - an impact which is likely to be greater precisely on low-skilled, low wage workers.

Such a pay round could be in prospect. Sinn Fein has pledged to make the living wage the legal minimum wage. Regardless of whether it can ever carry out its pledges, this does seem to be the idea behind the whole concept, as defined in some detail by the living wage group; that everyone working full-time should earn enough "to enjoy a decent standard of living."

The group's membership included the trade union think tank NERI, the Vincentian Partnership for Social Justice, Social Justice Ireland, the lobby group TASC and the trade unions Unite and SIPTU. Admirable people all but not, it must be admitted, covering a wide political spectrum.

The unions can hardly ignore it, although the economists at NERI are wary about how it might be implemented. Perhaps it is just another version of the old adversarial system of trade unions and employers; the opening shot in a new round of pay negotiations.

Except that, this is not how it is being presented and, with an election coming, there could be a shortage of adversaries on the other side. Even on the same side, as Fianna Fail may be ruefully reflecting. They have proposed a 6.4pc rise in the minimum wage, which stands at €8.45 an hour. A decent enough rise, one might say, although members of the living wage group are hostile to percentages, and will point out that the rise is 50 cent an hour.

Sinn Fein's proposal to increase the minimum to the "living wage" of €11.45 an hour represents an increase of more than a third. That would be bound to have enormous repercussions on the labour market, even if no one can say exactly they would be.

We appear to be left with no framework for setting wages at all. The National Competitiveness Council has resumed its long-established role of pointing out that costs are rising faster than in many of the countries with which we share a currency. But this vital factor has never been part of pay negotiation, contributing to another absurd bubble - that of earnings - in the 2000s.

A second idea - that the private sector should set the pace, and the public sector follow, receives equally short shrift. ISME as leader is not a popular plan. Indeed, it looks like the Government may award its workers a pay rise without negotiations at all. That would certainly simplify matters, but can hardly be called a policy.

What is needed is some kind of system whereby information on all these matters could be compiled and put before a negotiating forum which would do its best to balance the competing claims of fairness, employment and competitiveness in agreeing pay and conditions. Which, of course, is exactly what we did have except that, as in so many other areas, the people concerned failed abysmally in their role. Some are gone, some are still around, but only the flotsam and jetsam of policy remains.

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