It is estimated that around 166,700 employees, or 23% of the total in Northern Ireland earned below £7.20 per hour in April 2014. On the face of it, UK Chancellor, George Osborne's announcement that the UK minimum wage would rise to £7.20 by next year is good news for many of these workers. In the most recent UK budget the Government has committed itself to the gradual implementation of a ‘National Living Wage’ defined with reference to an hourly gross pay of £7.20 for all workers in the UK, including Northern Ireland, aged 25 and over by April 2016. This would be roughly equivalent to €10.30 at current exchange rates but not taking account of differences in the cost of living, social charges as well as the ‘social wage’.
The idea of a living wage can be a convenient and cosy one for politicians and various organisations in so far as it can be produced as a saving conscience measure while the regressive nature of wider social policy is not considered.
While definitions and measurements vary, the incidence of low pay is high in the United Kingdom, including Northern Ireland. My colleague Paul MacFlynn has profiled the extent and distribution of low pay in Northern Ireland (Hours and Earnings in the Northern Ireland Labour Market). In 2014, over one in four employees were low paid and the rate is above 50% in the ‘hospitality’ sector (restaurants, hotels and retail).
Care is needed in defining and measuring a ‘living wage’ as well as its converse ‘poverty wages’. This is not an exact science. It should be remembered that the hours of paid work as well as the various monetary and non-monetary conditions surrounding a job such as paid leave as well as contributions (if any) towards pensions and job tenure are vital to determining the impact of work on household income. Moreover, there is a world of a difference between a household comprising someone who earns half a million pounds and a partner who earns the current UK National Minimum Wage (NMW) £6.50 an hour. A rate of £7.20 per hour would represent an increase of 70 pence per hour over the current NMW. It would still be 65 pence short of what the UK Living Wage Foundation 
consider a living wage for those parts of the UK outside of London.
The long-term aim of the conservative government is to increase the NLW to 60% of median hourly earnings by 2020 (about £9 per hour in current value terms). This seems like a positive development especially as it might help to undo some of the damage caused to living standards among the ‘working poor’ – those living below an agreed poverty line. However, at the same time, the UK Government is to reduce UK universal credits very significantly. For many workers, this will more than negate the impact of any increase in the minimum wage. Ironically, the cut in the universal credits will have the impact of raising the estimated UK living wage since included in the calculation is the interaction between earnings, taxes and the minimum standard of living. Furthermore, there is an angle that has not received much attention – businesses will receive new tax reductions by way of lower corporate tax (the ‘headline’ rate will fall to 18% by 2020). It would not be at all surprising if the Irish Government runs with the recommendation of the Irish Low Pay Commission to increase the Irish National Minimum Wage by 50 euro cent and, at the same time, provide tax relief by way of lower employer pay-related social insurance to be announced in October 2016.
To be blunt – both UK and Irish Governments are offering a limited uplift to some low paid workers to compensate for reductions in real pay over recent years but by means of a subsidy to employers who, by comparison with other European States, pay much less by way of social insurance. Indeed, both Governments are proud of their record in removing more and workers from the income tax net. It is a faustian pact by which the State partly subsidises employers to pay somewhat higher hourly wage rates than might otherwise have been the case but in return for a lower social wage – in the longrun. The bigger picture is:
- Rising levels of low pay in some OECD countries including the UK and Ireland
- Lower incidence of income tax generally including those on low pay
- Poorer social insurance support and provision
- Lower corporate/employer tax contributions
And countries competing for workers and investment (such as Ireland and UK) are advised not to step out of line by raising taxes or over-pricing labour. It is a slow, gradual and regressive crawl to the bottom of the equality ladder and tax and welfare policy is part of the story.
Frequently, the idea or policy of a ‘living wage’ (no matter who measured or implemented) is dismissed as irrelevant or dangerous because of its potential impact on enterprise costs and employment (the claim is that any significant increase in wages will lead to fewer workers being hired or higher prices which put businesses at greater competitive risk). In last week’s Inflation Report released by the Bank of England the impact of the UK ‘National Living Wage’ was described as ‘uncertain but estimated to be small’. Echoing similar findings from the UK Low Pay Commission, analysts at the Bank conclude that:
Past evidence suggests that companies have partly responded in ways other than by increasing prices: for example, they have adjusted pay structures and reduced other labour costs, such as overtime pay. There is also limited evidence of increases in the National Minimum Wage affecting aggregate employment in the United Kingdom.
[For an overview of the impact of raising the minimum wage in the Republic of Ireland see a submission by my colleague Tom McDonnell here. And for a detailed statistical background to a distribution of low paid workers in the Republic of Ireland see a recent NERI working paper by my colleague Micheál Collins here].