Business Irish

Friday 19 January 2018

Expected minimum wage will hit local firms, as workers seek pro rata increases

The LPC will increase in the minimum wage this week. Good news for low-paid workers - but firms will feel the pain

Mark Fielding, chief executive of small business group ISME, doesn't agree there is a need to increase the minimum wage
Mark Fielding, chief executive of small business group ISME, doesn't agree there is a need to increase the minimum wage
Dan White

Dan White

The Low Pay Commission is expected to recommend a phased increase in the minimum wage when it delivers its first report this week.

The Low Pay Commission Act was signed into law by the President last Wednesday -and puts the Low Pay Commission, established by Minister of State for Business and Employment Ged Nash last February, on a statutory footing.

Ireland has had a minimum wage for the past 15 years. When it was first introduced in 2000 the minimum wage was pitched at €5.59 an hour. By 2007 it has risen to €8.65, at which point Ireland had the second-highest minimum wage in Europe, with only tiny Luxembourg having a higher rate.

Then the Celtic Tiger bubble burst. The minimum wage hasn't been raised since 2007 - the previous government briefly reduced the minimum wage by €1 an hour at the urging of the Troika following the 2010 bailout.

However, even after eight years without an increase Ireland's minimum wage remains high when compared with most other European countries. While we have fallen from second to fifth place in European rankings, we are only marginally behind Germany, the Netherlands and Belgium.

So is this the right time to be raising the minimum wage? In the aftermath of the post-Celtic Tiger bust Ireland shed 310,000 jobs, almost 15pc of the 2007 peak of 2.14 million, and the unemployment rate rose from 4.5pc to over 15pc. Under such circumstances any increase in the minimum wage was clearly out of the question.

The Irish labour market bottomed out in the second quarter of 2012. Since then the number of people at work has increased by 95,000. With Irish GNP, basically the domestic economy, having increased by 5.2pc in 2014 and the ESRI predicting GDP growth of 4.2pc in 2015 and 3.6pc in 2016, is it now time to think about increasing the minimum wage?

TASC, the left-leaning think tank, definitely thinks so. In its submission to the Commission it calls for the statutory minimum wage to rise to the level of the 'living wage' (which has been calculated to be €11.50 an hour by the Living Wage Technical Group) over time.

"Ireland has one of the highest levels of low pay in the OECD," says TASC policy analyst Cormac Staunton. TASC calculates that 20pc of all those with jobs, almost 400,000 workers, earn less than two-thirds of the average wage.

"If Ireland had a minimum wage that was equal to a living wage there would be close to an additional €1bn spending in the local economy by people on low incomes", says TASC in its submission to the Low Pay Commission.

TASC published an opinion poll last week in which 86pc of those surveyed supported an increase in the minimum wage.

Mark Fielding, chief executive of small business group ISME, doesn't agree there is a need to increase the minimum wage. He points out that not alone is the existing minimum wage still relatively high by European standards, prices aren't rising -with the most recent CSO numbers showing that prices actually fell slightly in the 12 months to June.

While only 4pc of workers are on the minimum wage Mr Fielding warns that any increase will have a knock-on effect as those earning €10, €15 or even €20 per hour seek pro rata increases in order to maintain their relative advantage.

Earlier this year employers' body Ibec published a survey which showed that 60pc of companies employing more than 50 people expected to give their workers a pay increase in 2015, with the an average increase being 2pc. Meanwhile the Government has cut a deal with the trade unions which will give public sector workers a cumulative pay increase of up to 7.2pc between 2016 and 2018.

The fact that most workers can expect pay increases means that the political pressure for an increase in the minimum wage in advance of the general election is intense. Although the LPC is supposed to take an 'evidence-based' approach when reaching its decisions, Mr Nash rather gave the game away when he publicly stated his preference for an increase in the minimum wage last December.

UK chancellor George Osborne's decision to lift the British minimum wage to £9 an hour (€12.90 at the current exchange rate and well ahead of even the Irish 'living wage' figure) by 2020 will provide political cover for a similar increase this side of the Irish Sea.

Will the LPC be brave enough to defy the Minister by refusing to increase the minimum wage?

It seems unlikely. The expectation is that it will recommend an immediate increase in the minimum wage to between €9 and €9.50 an hour, which will come into force at the beginning of 2016, and that it will lay out a road map for further increases in the years ahead.

While she accepts that an increase in the minimum wage is almost certain to be announced by the LPC this week Maeve McElwee, head of industrial and human resources at Ibec, points out that while the larger foreign-owned firms will be able to afford the extra cost it could be a different story for smaller indigenous companies .

"An inappropriately high minimum wage could mean that companies don't create that extra job," she warns. A one-size-fits-all national minimum wage also fails to take into account differences between sectors and regions. A minimum wage that was affordable for most Dublin employers might prove to be excessive for other parts of the country, according to Ms McElwee.

Such concerns notwithstanding, for Mr Nash and his Government colleagues staring down the barrel of the electoral gun, anything less than an LPC recommendation for an immediate increase in the minimum wage doesn't bear thinking about.

Sunday Indo Business

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business