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Modelling the Impact of an Increase in Low Pay in the Republic of Ireland

Modelling the Impact of an Increase in Low Pay in the Republic of Ireland

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Authors

Niamh Holton and Micheál Collins

Summary

The establishment of a Low Pay Commission in the Republic of Ireland and the renewed focus on low pay and a ‘living wage’ both in Ireland and the UK has revived a growing interest in policies that focus on providing adequate minimum levels of pay for all employees.

This paper models the impact of an increase in the minimum wage to a level equal to two-thirds of median hourly earnings by 2020, a value equivalent to Eurostat’s definition of the Low Pay threshold. The modelled increase would bring the minimum wage to a level of €12.50 per hour in that year, an increase of 36.6% between 2016 and 2020. In the context of previous changes to the Irish wage floor, the increase is equivalent to the change between October 2002 and July 2007 (+36.2%). This paper finds that the modelled increase would raise the hourly earnings for almost one-third of the lowest paid employees and reduce the level of inequity in the wage distribution.

The analysis uses data from a nationally representative income survey, the 2013 Survey on Income and Living Conditions, to model the effects of this increase. In doing so it draws on the research literature to incorporate the various spillover effects that are likely to be associated with such a change. The results of this analysis highlight the nominal increase in hourly earnings across all employees and its impact by gender, employment sector and age group. The change in the wage bill as a result of this increase is examined, as are the possible impacts it will have on employment levels and the wider economy.

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