Reduction in minimum wage would represent ‘double strike’ against economic recovery

, , 1 Comment

3 Flares Twitter 3 Facebook 0 3 Flares ×
Print pagePDF pageEmail page

Yesterday afternoon TASC presented ‘The Minimum Wage‘ to the Oireachtas Joint Committee on Enterprise, Trade and Employment. During the presentation TASC Director Paula Clancy argued that any moves to reduce the minimum wage or JLC rates would represent what she termed a “double strike against economic recovery”.

This presentation follows on from TASCs ‘Square Deal? The Real Cost of Making a Meal in the Restaurant Sector‘ paper, written in response to the Restaurant Association of Ireland (RAI) call for a cut in the JLC wage rates earlier this year.

While making the presentation Paula Clancy provided several reasons why the minimum wages should not be reduced:

“Firstly, any cut in the minimum wage or JLC rates would take more money out of people’s pockets – thus directly impacting on small businesses and their ability to maintain or create jobs.  Instead, TASC argues that the best way of protecting and creating jobs is to take steps to boost demand in the economy.

“Secondly, TASC research shows that lowering these rates would reduce income tax, income levy, PRSI and VAT receipts – and would thus have a negative impact on the public finances.

“TASC has calculated that the direct cost to the Exchequer caused by reducing the JLC rate from €9.27 to the minimum wage rate of €8.65 would be €1,143 per worker. In addition, since low income workers tend to be ‘spenders’ rather than ‘savers’, almost all the wages lost would normally have been recycled as consumption spending – thus generating VAT receipts.

“At the same time, there is no evidence that lowering the minimum wage or JLC rates would have a significant impact on Irish competitiveness, since exporting companies tend to pay in excess of the minimum wage.

“All the evidence shows that reducing wages of those at the bottom of the earnings ladder will further postpone economic recovery”, Ms. Clancy concluded.

The TASC presentation is available here from the TASC website.


One Response

  1. Colin Quirke

    July 21, 2010 4:15 pm

    “In addition, since low income workers tend to be ‘spenders’ rather than ‘savers’, almost all the wages lost would normally have been recycled as consumption spending – thus generating VAT receipts.”

    Perhaps they should enter the third, and most economically helpful, category and become ‘borrowers’. This would ensure that there is no loss in VAT receipts. While the risk of loaning money to people with falling incomes may seem high, the best minds in the world have developed equations that show it isn’t risky at all. We know the risk is minimal because ratings agencies have looked at these equations and declared them to by triple-A rated, which sounds double plus good. These people employ the second best minds in the world, so we should trust them.

    There is also an emerging body of evidence to suggest that any losses incurred by this need not be borne by investors or bondholders in any case as they are in it for profit, so that would not make sense. There is a principle called “National Interest” which can be invoked here. From what I can make out it seems to involve quite a lot of interest, especially if the ratings agency don’t think the politicians (third best minds) are doing their job.

    Politicians are under huge pressure to do a good job here, because they know they could be very quickly replaced. If we don’t think the party who took the developers to the races are doing a good job, we can change them for the party that took the developers golfing and they will then be laughing out of the other side of their faces.