Saturday 22 October 2016

Lifting the minimum wage is gesture politics, paid for by employers

Published 22/07/2015 | 02:30

University of Limerick economist Stephen Kinsella
University of Limerick economist Stephen Kinsella

On the face of it, things like raising the minimum wage are what Labour is in Government to do. But a 50-cent "hike" for employees is gesture politics. Nice to have but hardly meaningful. If you're working an eight-hour shift, with say an hour for lunch, the 6pc increase means an extra €3.50 in gross pay at the end of the day.

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An employer, however, may beg to differ. Across a number of staff, that 50-cent increase will add up and potentially affect margins.

So is the hike affordable and justifiable? Businesses cry poverty and say no way; trade unions argue it doesn't go far enough.

Economists, unsurprisingly, also have mixed views, with some questioning the timing. "Small and medium enterprises will be the companies paying the minimum wage, having only just come off life support, and still desperately paying down Celtic Tiger-era bank debts," says Davy Stockbrokers' Conall Mac Coille. "So the timing is odd. It's only 4pc of employees that will be directly affected, so the economy will not implode. Nonetheless, just two years out of an IMF programme, a sudden 6pc wage increase for any sector hardly seems warranted."

The scepticism is shared by Dermot O'Leary at Goodbody Stockbrokers. "Based on the movements in general consumer prices since the period of the last increase, the reported rise looks hard to justify," he said.

"In the five years up to 2007, the minimum wage rose by 45pc, relative to an increase in the Consumer Price Index (CPI) of 19pc."

But University of Limerick economist Stephen Kinsella says a deeper examination of the CPI is required, arguing the average basket of a low-paid worker has risen quite a bit. It's wage-led growth, he says, adding low-paid workers tend to spend most of what they earn.

"Increasing wages at the lower end especially will lead to an increase in consumption, which will lead to an increase in demand, which will lead to an increase in growth. I don't think it will have a negative overall effect on employment and I think it will have a positive effect on demand," he says.

Irish Independent

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