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Decent wages: What, Why, How?

Posted on January 05, 2014 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

What is a 'living wage'? How do we measure it? And how could it be brought about for everyone at work? You have guessed - these are no simple answers to these questions. Research by NERI does throw some light on these questions and it is hoped to undertake additional research into these matters in the course of this coming year. 

First, a 'living wage' rests on the notion of a wage rate that is adequate and appropriate to enable people to live with dignity in today's society. Clearly, the needs of individuals will differ according to circumstances - the number of children in a household, whether or not someone lives in a rural area where they may need access to a car to get to work or for other reasons and how income is shared in a household between adults.  It probably makes sense to separate out the concept of (i) a 'living income' defined and measured at the level of a household where a number of people share living arrangements to some extent, and (ii) a wage paid to an individual for the work that he/she carries out. A wage is measured with reference to an hour, a week, a year or a one-off job that someone is contracted to do. An amount of money paid to an individual for work done and is typically accompanied in the case of most jobs by entitlements to pay for holidays, time taken during sickness, parental duties etc. Wages is one component of what a household receives along with (possible) social welfare payments (if for example a household is entitled to Family Income Supplement in the Republic Ireland as a result of its combined wage income being too low) or income from investment, savings etc. Depending on the total wage income of a household any number of combinations are possible within a household defined as a shared living arrangement involving some pooling of income and expenditures: low hourly wages and short hours for one adult combined with high hourly wages and long hours for another adult; high hourly wages for two adults but short hours for both; no wages because no adult in the household works etc. These distinctions may seem pedantic but they are important.

A 'living wage' is only one part of a discussion on 'living income' of households. Typically (and correctly) poverty and income inadequacy is approached and measured at the household level. There is, obviously, a strong statistical association between low pay (or no pay at all when adults in a household are out of work) and low income. Any society concerned about social cohesion and social justice needs to be concerned about ensuring high levels of employment for adults combined with decent (living) wages for individuals. The State has a vital role in supplementing income when needed (such as in old age or where individuals become unemployed for a period or where people are not able to work). However, the ideal policy goal (I suggest) is to ensure that enough people have jobs and that these jobs pay an adequate wage or income (if people are self-employed or employ others). On this foundation it is possible for individuals to pay taxes and social contributions which pay for services and income protection at various stages of the life cycle including significant temporary needs that can arise.

A living wage should mean that 'if you work hard, you should make a decent living. If you work hard you should be able to support a family' to quote President Obama in a speech he gave recently.

Work by the Vincentian Partnership along with work by my colleague Micheál Collins has thrown some light on the amount of income likely to be required by different types of households. In his paper, Micheál Collins reports a minimum essential standard of living defined as 'one which meets a person’s physical, psychological and social needs'. To establish this figure, research by the Vincentian Partnership adopts a 'consensual budgets standards approach whereby representative focus groups established budgets on the basis of a households minimum needs, rather than wants. These budgets, spanning over 2,000 goods, were developed for sixteen areas of expenditure. The analysis distinguishes between the expenditure for urban and rural households and between those whose members are unemployed or work (part-time/full-time)'. While circumstances and needs differ and there is a large range of minimum income needs it is possible to calculate a reasonable standard of living for say two adults (one working full-time, the other part-time) in a rural area and with two children in second level education. The indicative income requirement is €785 per week. If, by way of example, total working hours came to 60 hours (40 plus 20) then the average hourly rate of remuneration after deduction of taxes (over two adults) would need to be just over €13. However, given that most workers at modest levels of remuneration might  pay somewhere in the region of 10 to 15% in income tax and PRSI then the hourly gross wage would need to be somewhat higher than €13 per hous in the specific example given here (2 adults, 2 children and rural setting). These figures are provided to explain the complexity and range of possible wage rates consistent with a 'living income' for households.. One approach is to focus on some country-wide threshold below which a 'typical household' dependent mainly or exclusively on wage income would not fall. But, what is a typical household? The traditional image of a single bread-winner household with many children no longer applies. Hence, the idea of a 'just wage' for the 'working man' to provide for wife and children does not apply since at least the 1960s in the case of Ireland.

The only operational way to approach the challenge of measurement is to separate the (crucial) concept of a living (or adequate) household income from that of a 'living wage' defined as a socially acceptable and appropriate wage which enables individual workers to live independently or, if they chose, with others. It is the role of the State or community to provide additional support either by way of direct provision of services or income where there is a need for this.

Lets take the case of a single adult living alone in an urban setting. According to the research cited above that person would need a weekly wage, if they were working, of €385 to meet a minimum standard of living. In a rural area they would need €425 (reflecting the cost of getting to and from work). If the urban adult were working full-time an hourly rate of €8.95 would suffice. However, in a rural setting it would be €10.63.  However, with rising rental costs and hours prices in some urban areas these estimate will need revision. Given that most workers are not single and given the fact that only some adults work full-time (whether by choice or otherwise) it would not be unreasonable to stipulate a higher hourly (or weekly) wage than the minimum indicated here especially if such a rate were to be applied and understood as universal or normative for all workers at a given time.

From this point it gets more complicated!

The dismantling of collective agreements (such as those covered by the JLCs, EROs, ERAs) poses a major challenge. Add to that the growth in precarious employment involving short hours and no benefits by way of sick pay etc means that an exclusive focus on hourly wage rates may be misleading and even possibly harmful. We need to focus on hourly rates and hours of work and all the other monetary aspects of a wage contract involving income continuance and protection when people are temporarily not able to work.

A starting point for a debate on 'low pay' and the 'living wage' in Ireland could be the National Minimum Hourly Wage (currently frozen at €8.65 per hour since 2007). A restoration of this rate to its real 2007 value is the very least that should be considered at this time especially in light of the growing inequality and rising incidence of material deprivation including food poverty. At the NERI we will be returning to this topic frequently in the course of 2014.

 

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