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Some Implications of a Living Wage

Posted on October 02, 2015 by Micheál Collins

LW 2015 4

Earlier this week, the inaugural Living Wage Forum was convened to explore the idea and potential of the concept of a Living Wage for the Republic of Ireland.

As part of a contribution from the Living Wage Technical Group, I outlined some of the implications of a Living Wage for employees, employers and the state. The presentation was based on an earlier NERI research paper (see below) which examined the international literature and experiences of Living Wages. In summary, I pointed out that:

  • Employees gain through both financial and non-financial routes. Obviously low paid employees gain additional gross income and this effect can be substantial when compared to changes in the taxation and welfare system that are discussed in the context of annual budgets. Aside from this, the evidence points towards notable non-financial benefits in the form of increases in human capital, greater work and family life stability and overall increases in well-being (much of it associated with a reduction in the day-to-day financial strain low paid employees encounter).
  • While Employers have been found to experience an increase in their wage bills associated with higher rates of pay the evidence elsewhere shows that this effect has resulted in limited impacts on turnover, sales, profits, prices and output. Indeed, employers gain from efficiencies associated with reductions in staff turnover, decreases in recruitment spending, reduced absenteeism and some productivity gains. The arrival of a Living Wage also has allowed employers to explore opportunities to restructure work patterns to the benefit of both themselves and their employees. Clearly, for employers the greatest challenges lie with those working in sectors which are both low-pay and labour intensive (e.g. retail and hospitality) and it might be best to consider pathways towards the implementation of a Living Wage for these sectors, rather than any overnight introduction.
  • The State tends to be a major gainer as a result of the adoption of a Living Wage. It gains additional income taxes and social insurance payments. As low paid workers spend most of their income (the Living Wage is calculated on the basis of a small amount of savings for rainy days etc) there are also gains for the exchequer in indirect taxation revenues. Furthermore, higher incomes for low paid workers decreases some of the needs of the welfare budget delivering a further gain for the state. 

The paper is available here and complements another NERI working paper on the living wage issued in early March 2014.

Paper reference: Collins, M.L. (2014). ‘The Impacts and Challenges of a Living Wage for Ireland’ NERI Working Paper, 2014/13. Dublin, NERI.

Previous paper: Collins, M.L. (2014). ‘A Living Wage for Ireland: Some Considerations and Initial Estimates’ NERI Working Paper, 2014/12. Dublin, NERI.

The website of the Living Wage Technical Group is www.livingwage.ie 

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