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Low Pay and the Living Wage

Posted on February 27, 2015 by Micheál Collins

Micheal Collins profile

At a meeting earlier this week, the Oireachtas Joint Committee on Jobs, Enterprise and Innovation focused on the topic of Low Pay and the Living Wage.

In a contribution to the committee, I first outlined some context for their examination of these issues, before going into more detail on the concept of a Living Wage.

  • In 2012, Eurostat – the European Statistics Agency, published their analysis of the 2010 EU-wide Labour Force Survey. It classified 20.7% of workers (1 in 5) in Ireland as low-paid, meaning that they earned below a low pay threshold of €12.20 per hour – a figure equivalent to 66% of national median hourly earnings. They also found that low pay is more common among women, those with low education levels and workers with fixed duration contracts.
  • The latest CSO poverty figures, for 2013 and published in January of this year, indicate that of all those in poverty, 11.7% are working – the group known as the working poor. They represent about 85,000 workers.
  • The latest Quarterly National Household Survey Data show that there are almost 125,000 workers underemployed – that is working part-time, but not working as many hours as they would wish to work. A phenomenon that is bound to have a negative impact on their income.
  • The distribution of direct income in Ireland (earnings from all sources) is heavily skewed. The latest data, for 2013, show this pre-distribution of income is such that the top two deciles (10% groups) receive more than 50% of all direct income and the top three deciles receive more than 67% of all income. The top 20% receive 25 times the share of the bottom 20%.The scale of that inequality continues to place large pressure on the redistributive system, and in particular the social welfare system, to even out the income distribution – something it does well, but at an ever increasing cost.

In the context of figures such as these, in this country and in others, attention has turned in recent years to the adequacy of earnings – in particular the adequacy of low pay rates. The attention given to this issue underscores a growing appreciation for society to consider low wage rates not just in the context of competitiveness and competition but also in the context of income adequacy and living standards. In effect it reflects a belief that across societies individuals working full-time should be able to earn enough income to enjoy a decent standard of living.

A year ago the Living Wage Technical Group was set-up with an objective of establishing a transparent, robust and sustainable way of determining a Living Wage for Ireland. The group’s members included the NERI, the Vincentian Partnership for Social Justice, Social Justice Ireland, TASC, Unite the Union and SIPTU. Over a period of 4-5 months the group met and developed a methodology, based on the available data in Ireland and the precedents and lessons in the international research literature, and published that methodology alongside a 2014 value for a Living Wage in July 2014. The documents are available on the Living Wage website,

The Living Wage figure established for 2014 was €11.45 per hour. The figure is the average gross salary which will enable full time employed adults (without dependents) across Ireland to afford a socially acceptable standard of living. That standard of living covers spending across 17 categories of expenditure, covering up to 2,000 goods and services, and takes into account the structure of the taxation and social protection systems. The calculations, which draw on the Minimum Essential Standard of Living analysis of the Vincentian Partnership for Social Justice, were completed for the country as a whole, with expenditure figures calculated for Dublin, other cities, towns with populations of more than 5,000 and rest of Ireland including small towns and rural Ireland. The results from this analysis were then brought together to establish the national figure.

The group plans to update the Living Wage figure on an annual basis; the next update is due during the Summer of 2015.

In a research paper published at the NERI last year, I detailed some of the impacts and challenges that the establishment and introduction of a Living Wage would have for Ireland. In summary, its key points included:

  • There are impacts on the individual or the employee both in terms of income gains and consequent improvements in living standards for them and their family. This should not be underestimated, for example a €1 per hour increase in the pay of a full-time low waged worker is equivalent to a gross income gain of €2,033 per year – a multiple of any possible Budgetary change to social protection or taxation levels.
  • There are impacts for employers whose wage bills will increase, something that the research literature shows is of limited consequence in sectors such as finance, banking and construction where there are few earners already below the living wage threshold and so any increase in costs is small. In sectors with a greater proportion of low paid employees (such as retail, food production, bars and restaurants) the wage bill impact is likely to be more pronounced and it would seem sensible that any move to a Living Wage in these sectors would be phased in.
  • The research literature also points towards impacts for employers in terms of cost savings and gains from increases in staff retention, reduced absenteeism and improvements in productivity and efficiency. While these may not fully offset the increased wage costs in the high labour sectors, the research literature points towards them making a significant contribution towards reducing these costs.
  • There are also impacts on the state which gains through increased taxation, particularly indirect taxation, reductions in social protection expenditure, and increases in both employers and employees social insurance contributions.

I think the implementation of a Living Wage is likely to be a gradual and voluntary process. In some sectors, where there are only small numbers of employees below the threshold (eg finance), achieving increases should be possible and the international research shows little or no impact for companies – is seems to me that there is no reason why, for example, the IFSC could not become a Living Wage Zone. There are greater challenges in labour intensive low-pay sectors (retail, accommodation etc) where a phased approach to achieving a living wage is more doable. Similarly, local authorities, like in other countries, should take a leadership role and ensure their employees and contracted workers are all paid at least the Living Wage.

The experience elsewhere is that the idea of a Living Wage evolves from ‘impossible’ to ‘societally beneficial’; although that transition and its acceptance by employers, workers and society in general can take time.

 

Posted in: IncomeJobsLabour costsLiving wageWages

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